IMAX Annual Report 2013 | Quarterlytics

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 Form 10-K (Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the fiscal year ended December 31, 2013 ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934Commission file Number 001-35066 IMAX Corporation(Exact name of registrant as specified in its charter) Canada 98-0140269(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification Number) 2525 Speakman Drive,Mississauga, Ontario, Canada L5K 1B1(905) 403-6500 110 E. 59th Street, Suite 2100New York, New York, USA 10022(212) 821-0100(Address of principal executive offices, zip code, telephone numbers)Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Exchange on Which RegisteredCommon Shares, no par value The New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act:None(Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes x No ¨Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, tothe best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendmentto this Form 10-K ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer ¨Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting Company ¨Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act). Yes ¨ No xThe aggregate market value of the common shares of the registrant held by non-affiliates of the registrant, computed by reference to the last sale price ofsuch shares as of the close of trading on June 30, 2013 was $1,407.2 million (56,604,512 common shares times $24.86).As of January 31, 2014, there were 67,893,045 common shares of the registrant outstanding.Document Incorporated by ReferencePortions of the registrant’s definitive Proxy Statement to be filed within 120 days of the close of IMAX Corporation’s fiscal year ended December 31,2013, with the Securities and Exchange Commission pursuant to Regulation 14A involving the election of directors and the annual meeting of the stockholdersof the registrant (the “Proxy Statement”) are incorporated by reference in Part III of this Form 10-K to the extent described therein. Table of ContentsIMAX CORPORATIONDecember 31, 2013Table of Contents Page PART I Item 1. Business 4 Item 1A. Risk Factors 18 Item 1B. Unresolved Staff Comments 28 Item 2. Properties 29 Item 3. Legal Proceedings 30 Item 4. Mine Safety Disclosures 32 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 33 Item 6. Selected Financial Data 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 41 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 79 Item 8. Financial Statements and Supplementary Data 81 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 144 Item 9A. Controls and Procedures 144 Item 9B. Other Information 144 PART III Item 10. Directors, Executive Officers and Corporate Governance 145 Item 11. Executive Compensation 145 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 145 Item 13. Certain Relationships and Related Transactions, and Director Independence 145 Item 14. Principal Accounting Fees and Services 145 PART IV Item 15. Exhibits, Financial Statement Schedules 145 Signatures 149 2Table of ContentsIMAX CORPORATIONEXCHANGE RATE DATAUnless otherwise indicated, all dollar amounts in this document are expressed in United States (“U.S.”) dollars. The following table sets forth, for theperiods indicated, certain exchange rates based on the noon buying rate in the City of New York for cable transfers in foreign currencies as certified forcustoms purposes by the Bank of Canada (the “Noon Buying Rate”). Such rates quoted are the number of U.S. dollars per one Canadian dollar and are theinverse of rates quoted by the Bank of Canada for Canadian dollars per U.S. $1.00. The average exchange rate is based on the average of the exchange rates onthe last day of each month during such periods. The Noon Buying Rate on December 31, 2013 was U.S. $0.9402. Years Ended December 31, 2013 2012 2011 2010 2009 Exchange rate at end of period 0.9402 1.0051 0.9833 1.0054 0.9555 Average exchange rate during period 0.9713 1.0006 1.0151 0.9709 0.8757 High exchange rate during period 1.0164 1.0299 1.0583 1.0054 0.9716 Low exchange rate during period 0.9348 0.9599 0.9430 0.9278 0.7692 SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATIONCertain statements included in this annual report may constitute “forward-looking statements” within the meaning of the United States Private SecuritiesLitigation Reform Act of 1995. These forward-looking statements include, but are not limited to, references to future capital expenditures (including theamount and nature thereof), business and technology strategies and measures to implement strategies, competitive strengths, goals, expansion and growth ofbusiness, operations and technology, plans and references to the future success of IMAX Corporation together with its wholly-owned subsidiaries (the“Company”) and expectations regarding the Company’s future operating, financial and technological results. These forward-looking statements are based oncertain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expectedfuture developments, as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conformwith the expectations and predictions of the Company is subject to a number of risks and uncertainties, including, but not limited to, general economic,market or business conditions; the opportunities (or lack thereof) that may be presented to and pursued by the Company; the performance of IMAX DMRfilms; competitive actions by other companies; conditions in the in-home and out-of-home entertainment industries; the signing of theater system agreements;changes in laws or regulations; conditions, changes and developments in the commercial exhibition industry; risks associated with investments andoperations in foreign jurisdictions and any future international expansion, including those related to economic, political and regulatory policies of localgovernments and laws and policies of the United States and Canada; risks related to the Company’s growth and operations in China; the failure to respond tochange and advancements in digital technology; the Company’s largest customer accounting for a significant portion of the Company’s revenue and backlog;risks related to new business initiatives; the potential impact of increased competition in the markets within which the Company operates; risks related to theCompany’s inability to protect the Company’s intellectual property; risks related to the Company’s implementation of a new enterprise resource planningsystem; the failure to convert theater system backlog into revenue; risks related to the Company’s dependence on a sole supplier for its analog film; and otherfactors, many of which are beyond the control of the Company. Consequently, all of the forward-looking statements made in this annual report are qualifiedby these cautionary statements, and actual results or anticipated developments by the Company may not be realized, and even if substantially realized, maynot have the expected consequences to, or effects on, the Company. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise. IMAX®, IMAX® Dome, IMAX® 3D, IMAX® 3D Dome, Experience It In IMAX®, The IMAX Experience®, An IMAX Experience®, An IMAX 3DExperience®, IMAX DMR®, DMR®, IMAX nXos®, IMAX think big®, think big® and IMAX Is Believing®, are trademarks and trade names of theCompany or its subsidiaries that are registered or otherwise protected under laws of various jurisdictions. 3Table of ContentsPART I Item 1.BusinessGENERALIMAX Corporation, together with its wholly-owned subsidiaries (the “Company”), is one of the world’s leading entertainment technology companies,specializing in motion picture technologies and presentations. IMAX offers a unique end-to-end cinematic solution combining proprietary software, theaterarchitecture and equipment to create the highest-quality, most immersive motion picture experience for which the IMAX brand has become known globally.Top filmmakers and studios utilize IMAX theaters to connect with audiences in innovative ways, and as such, IMAX’s network is among the most importantand successful theatrical distribution platforms for major event films around the world.The Company’s principal businesses are: • the design and manufacture of premium theater systems (“IMAX theater systems”) and the sale, lease or contribution of those systems tocustomers under theater arrangements; and • the Digital Re-Mastering of films into the IMAX format and the exhibition of those films in the IMAX theater network.IMAX theater systems are based on proprietary and patented technology developed over the course of the Company’s 46-year history. The Company’scustomers who purchase, lease or otherwise acquire the IMAX theater systems are theater exhibitors that operate commercial theaters (particularly multiplexes),museums, science centers, or destination entertainment sites. The Company generally does not own IMAX theaters, but licenses the use of its trademarks toexhibitors along with the sale, lease or contribution of its equipment. The Company refers to all theaters using the IMAX theater system as “IMAX theaters.”IMAX theater systems combine: • IMAX DMR (Digital Re-Mastering) movie conversion technology, which results in higher image and sound fidelity than conventional cinemaexperiences; • advanced, high-resolution projectors with specialized equipment and automated theater control systems, which generate significantly more contrastand brightness than conventional theater systems; • large screens and proprietary theater geometry, which result in a substantially larger field of view so that the screen extends to the edge of a viewer’speripheral vision and creates more realistic images; • sound system components, which deliver more expansive sound imagery and pinpointed origination of sound to any specific spot in an IMAXtheater; and • specialized theater acoustics, which result in a four-fold reduction in background noise.The components together cause audiences in IMAX theaters to feel as if they are a part of the on-screen action, creating a more intense, immersive andexciting experience than a traditional theater.As a result of the immersiveness and superior image and sound quality of The IMAX Experience, the Company’s exhibitor customers typically chargea premium for IMAX DMR films over films exhibited in their other auditoriums. The premium pricing, combined with the higher attendance levels associatedwith IMAX DMR films, generates incremental box-office for the Company’s exhibitor customers and for the movie studios releasing their films to the IMAXnetwork. The incremental box-office generated by IMAX DMR films has helped establish IMAX as a key premium distribution and marketing platform forHollywood blockbuster films, which is separate and distinct from their wider theatrical release.The Company believes the IMAX theater network is the most extensive premium theater network in the world with 837 theater systems (720 commercial,117 institutional) operating in 57 countries as at December 31, 2013. This compares to 731 theater systems (617 commercial, 114 institutional) operating in53 countries as at December 31, 2012. The success of the Company’s digital and joint revenue sharing strategies and the strength of its film slate has enabledthe Company’s theater network to expand significantly, with the Company’s overall network increasing by 180% and the Company’s commercial networkincreasing by 302% from the beginning of 2008. In 2013 and 2012, the Company signed theater agreements for 277 and 142 systems, respectively, which isexpected to drive additional growth in 2014 and thereafter.The Company has identified approximately 1,700 IMAX zones worldwide. The Company believes that these zones present the potential for the IMAXtheater network to grow significantly from the 701 commercial multiplex IMAX theaters operating as of December 31, 2013. While the Company continues togrow domestically, particularly in small to mid-tier markets, a significant 4Table of Contentsportion of the Company’s recent growth has come from international markets, a trend that the Company anticipates will continue into the future. In 2013,83.8% of the Company’s 277 new theater signings were for theaters in international markets. Key international growth markets include Greater China (whichincludes the People’s Republic of China, Hong Kong, Taiwan and Macau), India, Latin America (which includes South America, Central America andMexico) and Eastern and Western Europe. In fact, 2013 marked the first year in the Company’s history that revenue and gross box-office derived from outsidethe United States and Canada exceeded revenues and gross box-office from the United States and Canada.Greater China continues to be the Company’s second-largest and fastest-growing market. As at December 31, 2013, the Company had 173 theatersoperating in Greater China and an additional 239 theaters (includes 2 upgrades) in backlog which represent 58.7% of the Company’s current backlog andwhich are scheduled to be installed in Greater China by 2021. The Company continues to invest in joint revenue sharing arrangements with select partners toensure ongoing revenue in this key market. In 2013, the Company and Wanda Cinema Line Corporation (“Wanda”) announced amendments of the parties’original 2011 joint revenue sharing arrangement for an additional 120 IMAX theaters to be located throughout China. The most recent expansion bringsWanda’s total commitment to 210 IMAX theater systems, of which 195 are under the parties’ joint revenue sharing arrangement. The Company believes thatthe China market presents opportunities for additional growth with favorable market trends, including government initiatives to foster cinema screen growth,to support the film industry and to increase the number of Hollywood films distributed in China. Recent initiatives include a 2012 agreement with the U.S. topermit 14 additional IMAX or 3D format films to be distributed in China each year and to permit distributors to receive higher distribution fees. The Companycautions, however, that its expansion in China faces a number of challenges. See Risk Factors – “The Company faces risks in connection with the continuedexpansion of its business in China” in Item 1A. In 2011, the Company formed IMAX (Shanghai) Multimedia Technology Co., Ltd (“IMAX China”) tofacilitate the Company’s expansion in China. As at December 31, 2013, IMAX China had offices in Shanghai and Beijing and total of 57 employees.Over the years, several technological breakthroughs have established IMAX as an important distribution platform for Hollywood’s biggest event films.These include: • DMR – IMAX’s proprietary DMR technology digitally converts live-action digital films or 35mm to its large-format, while meeting the Company’s highstandards of image and sound quality. In a typical IMAX DMR film arrangement, the Company will receive a percentage, which generally ranges from10-15%, of net box-office receipts of a film from the film studio in exchange for the conversion of the film to the IMAX DMR format and for access tothe IMAX distribution platform. At December 31, 2013, the Company had released 157 IMAX DMR films since the introduction of IMAX DMR in2002. The number of films released on an annual basis that have been converted through the DMR process has increased significantly in recent yearswith the advent of digital technology that reduced the DMR conversion time and with the strengthening of the Company’s relationships with majorHollywood studios. Accordingly, 38 films converted through the IMAX DMR process were released in 2013, as compared to 35 in 2012 and 6 in 2007. • IMAX Digital Projection System – The Company introduced its digital xenon projection system in 2008. Prior to 2008, all of IMAX’s large formatprojectors were film-based and required analog film prints. The IMAX digital projection system, which operates without the need for such film prints,was designed specifically for use by commercial multiplex operators and allows operators to reduce the capital and operating costs required to run anIMAX theater without sacrificing the image and sound quality of The IMAX Experience. By making The IMAX Experience more accessible forcommercial multiplex operators, the introduction of the IMAX digital projection system paved the way for a number of important joint revenue sharingarrangements which have allowed the Company to rapidly expand its theater network. Since announcing that the Company was developing digitalprojection technology, the vast majority of the Company’s theater system signings have been for digital systems. As at December 31, 2013, theCompany has signed agreements for 1,041 xenon-based digital systems since 2007 (including the upgrade of film-based systems), 220 of which weresigned in 2013 alone. As at December 31, 2013, 696 IMAX digital xenon projection systems were in operation, an increase of 23.4% over the 564 digitalprojection systems in operation as at December 31, 2012.As one of the world’s leaders in entertainment technology, the Company strives to remain at the forefront of advancements in cinema technology.Accordingly, one of the Company’s key short-term initiatives is the development of a next-generation laser-based digital projection system, which it plans tobegin rolling out by the end of 2014. In order to develop the laser-based digital projection system, the Company obtained exclusive rights to certain laserprojection technology and other technology with applicability in the digital cinema field from Eastman Kodak Company (“Kodak”) in 2011 and entered a co-development arrangement with Barco N.V. (“Barco”) to co-develop a laser-based digital projection system that incorporates Kodak technology in 2012. TheCompany believes that these arrangements with Kodak and Barco will enable IMAX laser projectors to present greater brightness and clarity, a wider colorgamut and deeper blacks, and consume less power and last longer than existing digital technology. The Company also believes that a laser projection solutionwill be the first IMAX digital projection system capable of illuminating the largest screens in its network. As of December 31, 2013, the Company had 62laser-based digital theater systems in its backlog. 5Table of ContentsThe Company is also undertaking new lines of business, particularly in the area of in-home theater entertainment. In 2013, the Company announcedtwo new initiatives, including a joint venture with TCL Multimedia Technology Holding Limited (“TCL”) to design, develop, manufacture and sell apremium home theater system and an investment in PRIMA Cinema Inc., a maker of proprietary systems that transmit current theatrical releases for homeviewing. The Company and TCL expect to launch the new home theater system, which will incorporate components of IMAX’s projection and soundtechnology adapted for a broader home environment as well as PRIMA technology, in China and other select global markets in 2015. The Company alsorecently began marketing and selling a niche product, the IMAX Private Theatre, a cinema-grade, ultra-premium home theater system.In addition to the design and manufacture of premium theater systems, the Company is also engaged in the production and distribution of original large-format films, the provision of services in support of the IMAX theater network, the provision of post-production services for large-format films, the operationof three IMAX theaters and, from time-to-time the conversion of two-dimensional (“2D”) and three-dimensional (“3D”) Hollywood feature films for exhibitionon IMAX theater systems around the world. IMAX Corporation, a Canadian corporation, was formed in March 1994 as a result of an amalgamation betweenWGIM Acquisition Corp. and the former IMAX Corporation (“Predecessor IMAX”). Predecessor IMAX was incorporated in 1967.PRODUCT LINESThe Company believes it is the world’s largest designer and manufacturer of specialty premium projection and sound system components for large-format theaters around the world, as well as a significant producer and distributor of large-format films. The Company’s theater systems include specializedIMAX projectors, advanced sound systems and specialty screens. The Company derives its revenues from: • IMAX theater systems (design, manufacture, sale or lease of, and provision of services related to, its theater systems); • Films (production and digital re-mastering of films, the distribution of film products to the IMAX theater network, post-production and printservices for films); • Joint revenue sharing arrangements (the provision of its theater system to an exhibitor in exchange for a certain percentage of theater revenue and, insome cases, a small upfront or initial payment); • Theater system maintenance (the use of maintenance services related to its theater systems); and • Other activities, which include theater operations (owning equipment, operating, managing or participating in the revenues of IMAX theaters), thesale of after-market parts and camera rentals.Segmented information is provided in note 19 to the accompanying audited consolidated financial statements in Item 8.IMAX Systems, Theater System Maintenance and Joint Revenue Sharing ArrangementsThe Company’s primary products are its theater systems. The Company’s digital projection systems include a projector that offers superior imagequality and stability and a digital theater control system, a 6-channel, digital audio system delivering up to 12,000 watts of sound; a screen with a proprietarycoating technology, and, if applicable, 3D glasses cleaning equipment. IMAX’s digital projection system also operates without the need for analog film prints.Traditional IMAX film-based theater systems contain the same components as the digital projection systems but include a rolling loop 15/70-format projectorand require the use of analog film prints. Since its introduction in 2008, the vast majority of the Company’s theater sales have been digital systems and theCompany expects that virtually all of its future theater systems sales will be IMAX digital systems. Furthermore, a majority of the Company’s existing film-based theater systems have been upgraded, at a cost to the exhibitor, to an IMAX digital system. As part of the arrangement to sell or lease its theater systems,the Company provides extensive advice on theater planning and design and supervision of installation services. Theater systems are also leased or sold with alicense for the use of the world-famous IMAX brand. Historically, IMAX theater systems come in five configurations: • the GT projection systems, film-based theater systems for the largest IMAX theaters; • the SR systems, film-based theater systems for smaller theaters than the GT systems; • the IMAX MPX systems, which are film-based systems targeted for multiplex theaters (“MPX” theater systems); • the IMAX digital systems, which are digital-based systems; and • theater systems featuring heavily curved and tilted screens that are used in dome-shaped theaters. 6Table of ContentsThe GT, SR, IMAX MPX and IMAX digital systems are “flat” screens that have a minimum of curvature and tilt and can exhibit both 2D and 3Dfilms, while the screen components in dome shaped theaters are 2D only and are popular with the Company’s institutional clients. All IMAX theaters, with theexception of dome configurations, feature a steeply inclined floor to provide each audience member with a clear view of the screen. The Company holds patentson the geometrical design of IMAX theaters.The Company’s film-based projectors use the largest commercially available film format (15-perforation film frame, 70mm), which is nearly ten timeslarger than conventional film (4-perforation film frame, 35mm) and therefore are able to project significantly more detail on a larger screen. The Companybelieves these projectors, which utilize the Company’s rolling loop technology, are unsurpassed in their ability to project film with maximum steadiness andclarity with minimal film wear, while substantially enhancing the quality of the projected image. As a result, the Company’s projectors deliver a higher level ofclarity and detail as compared to conventional movies and competing projectors in order to compete and evolve with the market.The Company’s digital projection system provides a premium and differentiated experience to moviegoers that is consistent with what they have come toexpect from the IMAX brand, while providing for the compelling economics and flexibility that digital technology affords. The relatively low cost of a digitalfile delivery (approximately $100 per movie per system compared to $30 thousand per 2D print and $60 thousand per 3D print for an IMAX analog filmprint) ensures programming flexibility, which in turn allows theaters to program significantly more IMAX DMR films per year. More programming increasescustomer choice and potentially increases total box-office revenue significantly. In 2013, 38 films converted through the IMAX DMR process were released tothe IMAX theater network as compared to 35 in 2012 and 6 films in 2007. To date, the Company has contracted for the release of 14 DMR films to its theaternetwork for 2014, however, the Company expects a similar number of films to be released to the network in 2014 as experienced in 2013. The Companyremains in active discussions with all the major studios regarding future titles for 2014 and beyond. The Company expects to announce additional locallanguage IMAX DMR films to be released to the IMAX theater network in 2014 and beyond. Supplementing the Company’s film slate of Hollywood DMRtitles with appealing local DMR titles is an important component of the Company’s international film strategy.To complement its viewing experience, the Company provides digital sound system components which are specifically designed for IMAX theaters.These components are among the most advanced in the industry and help to heighten the realistic feeling of an IMAX presentation, thereby providing IMAXtheater systems with an important competitive edge over other theater systems. The Company believes it is a world leader in the design and manufacture ofdigital sound system components for applications including traditional movie theaters, auditoriums and IMAX theaters.The Company’s arrangements for theater system equipment involve either a lease or sale. As part of the purchase or lease of an IMAX theater system, theCompany also advises the customer on theater design, supervises the installation of the theater systems and provides projectionists with training in using theequipment. The supervision of installation requires that the equipment also be put through a complete functional start-up and test procedure to ensure properoperation. Theater owners or operators are responsible for providing the theater location, the design and construction of the theater building, the installation ofthe system components and any other necessary improvements, as well as the theater’s marketing and programming. The Company’s typical arrangement alsoincludes trademark license rights whose term tracks the term of the underlying agreement. The theater system equipment components (including the projector,sound system, screen system, and, if applicable, 3D glasses cleaning machine), theater design support, supervision of installation, projectionist training andtrademark rights are all elements of what the Company considers the system deliverable (the “System Deliverable”). For a separate fee, the Company providesongoing maintenance and extended warranty services for the theater system. The Company’s contracts are generally denominated in U.S. dollars, except inCanada, China, Japan and parts of Europe, where contracts are sometimes denominated in local currency.The Company offers certain commercial clients joint revenue sharing arrangements, pursuant to which the Company provides the System Deliverable inreturn for a portion of the customer’s IMAX box-office receipts, and in some cases, concession revenue and a small upfront or initial payment. Pursuant tothese revenue-sharing arrangements, the Company retains title to the theater system equipment components and the applicable rent payments are contingent,instead of fixed or determinable, on film performance. The initial term of IMAX theater systems under joint revenue sharing arrangements are typically non-cancellable for 10 to 13 years and are renewable by the customer for one or more additional terms of between 5 and 10 years. The Company has the right toremove the equipment for non-payment or other defaults by the customer. The contracts are generally non-cancellable by the customer unless the Companyfails to perform its obligations. In rare cases, the contract provides certain performance thresholds that, if not met by either party, allows the other party toterminate the agreement. By offering arrangements in which exhibitors do not need to invest the significant initial capital required of a lease or a salearrangement, the Company has been able to expand its theater network at a significantly faster pace than it had previously. As at December 31, 2013, theCompany has entered into joint revenue sharing arrangements for 645 systems with 38 partners, 382 of which were in operation as at December 31, 2013. 7Table of ContentsLeases generally have a 10-year initial term and are typically renewable by the customer for one or more additional 5 to 10-year terms. Under the terms ofthe typical lease agreement, the title to the theater system equipment (including the projector, the sound system and the projection screen) remains with theCompany. The Company has the right to remove the equipment for non-payment or other defaults by the customer. The contracts are generally not cancelableby the customer unless the Company fails to perform its obligations.The Company also enters into sale agreements with its customers. Under a sales agreement, the title to the theater system remains with the customer. Incertain instances, however, the Company retains title or a security interest in the equipment until the customer has made all payments required under theagreement.The typical lease or sales arrangement provides for three major sources of cash flows for the Company: (i) initial fees; (ii) ongoing minimum fixed andcontingent fees; and (iii) ongoing maintenance and extended warranty fees. Initial fees generally are received over the period of time from the date thearrangement is executed to the date the equipment is installed and customer acceptance has been received. However, in certain cases, the payments of the initialfee may be scheduled over a period of time after the equipment is installed and customer acceptance has been received. Ongoing minimum fixed and contingentfees and ongoing maintenance and extended warranty fees are generally received over the life of the arrangement and are usually adjusted annually based onchanges in the local consumer price index. The ongoing minimum fixed and contingent fees generally provide for a fee which is the greater of a fixed amount ora certain percentage of the theater box-office. The terms of each arrangement vary according to the configuration of the theater system provided, the cinemamarket and the film distribution market relevant to the geographic location of the customer.In 2012, Dalian Wanda Group Co., Ltd., the parent company of Wanda Cinema Line Corporation (“Wanda”), acquired AMC Entertainment Holdings,Inc. (“AMC”). Prior to this transaction, AMC and Wanda were, respectively, the Company’s first and third largest customers. Under common ownership,Wanda and AMC together is the Company’s largest customer, representing approximately 13.9%, 12.2% and 14.1% of the Company’s total revenue in 2013,2012 and 2011, respectively. In addition, Wanda and AMC together represented approximately 31% of the Company’s backlog as of December 31, 2013. SeeRisk Factors – “Under common ownership, Wanda and AMC together account for a significant and growing portion of the Company’s revenue and backlog.A deterioration in the Company’s relationship with Wanda and/or AMC could materially, adversely affect the Company’s business, financial condition orresults of operations.” in Item 1A.Sales Backlog.The Company’s sales backlog is as follows: December 31, 2013 December 31, 2012 Number ofSystems Dollar Value(in thousands) Number ofSystems Dollar Value(in thousands) Sales and sales-type lease arrangements 144 $177,956 139 $168,101 Joint revenue sharing arrangements 263 51,983 137 31,652 407 (1) $229,939 276 (2) $199,753 (1)Includes 23 upgrades to a digital theater system, in an existing IMAX theater location (3 xenon and 20 laser, of which 4 are under joint revenue sharingarrangements).(2)Includes 11 upgrades to a digital theater system, in an existing IMAX theater location (6 xenon and 5 laser).The number of theater systems in the backlog reflects the minimum number of commitments from signed contracts. The Company believes that thecontractual obligations for theater system installations that are listed in sales backlog are valid and binding commitments. Signed contracts for theater systemsare listed as sales backlog prior to the time of revenue recognition. The value of sales backlog does not include revenue from theaters in which the Companyhas an equity-interest, operating leases, letters of intent or long-term conditional theater commitments. The value of sales backlog represents the total value ofall signed theater system agreements that are expected to be recognized as revenue in the future. Sales backlog includes initial fees along with the estimatedpresent value of contractual fixed minimum fees due over the term, however it excludes amounts allocated to maintenance and extended warranty revenues aswell as fees in excess of contractual minimums that may be received in the future. The value of theaters under joint revenue sharing arrangements is excludedfrom the dollar value of sales backlog, although certain theater systems under joint revenue sharing arrangements provide for contracted upfront payments andtherefore carry a backlog value based on those payments, which is reflected in the table above. 8Table of ContentsThe following chart shows the number of the Company’s theater systems by configuration, opened theater network base and backlog as at December 31: 2013 2012 TheaterNetworkBase Backlog TheaterNetworkBase Backlog Flat Screen (2D) 22 — 22 — Dome Screen (2D) 58 — 61 — IMAX 3D Dome (3D) 2 — 2 — IMAX 3D GT (3D) 41 — 63 1 IMAX 3D SR (3D) 18 — 19 — IMAX MPX (3D) — — — 3 IMAX Digital: Xenon (3D) 696 345 (1) 564 267 IMAX Digital: Laser (3D) — 62 (2) — 5 Total 837 407 731 276 (1)Includes 3 upgrades from film-based theater systems to digital theater systems in existing IMAX theater locations (all institutional)(2)Backlog includes 20 upgrades to IMAX digital laser theater systems from IMAX digital xenon theater systems in existing IMAX theater locations (12commercial and 8 institutional)The Company estimates that it will install a similar number of new theater systems (excluding digital upgrades) as the Company installed in 2013. TheCompany’s installation estimates includes scheduled systems from backlog, as well as the Company’s estimate of installations from arrangements that willsign and install in the same calendar year. The Company cautions, however, that theater system installations may slip from period to period over the course ofthe Company’s business, usually for reasons beyond its control.IMAX Flat Screen and IMAX Dome Theater Systems. As at December 31, 2013, there were 82 IMAX flat screen and IMAX Dome theater systems inthe IMAX network, as compared to 85 IMAX flat screen and IMAX Dome theater systems as at December 31, 2012. IMAX flat screen and IMAX Domesystems primarily have been installed in institutions such as museums and science centers. Flat screen IMAX theaters were introduced in 1970, while IMAXDome theaters, which are designed for tilted dome screens, were introduced in 1973. There have been several significant proprietary and patentedenhancements to these systems since their introduction.IMAX 3D GT and IMAX 3D SR Theater Systems. IMAX 3D theaters utilize a flat screen 3D system, which produces realistic 3D images on an IMAXscreen. The Company believes that the IMAX 3D theater systems offer consumers one of the most realistic 3D experiences available today. To create the 3Deffect, the audience uses either polarized or electronic glasses that separate the left-eye and right-eye images. The IMAX 3D projectors can project both 2D and3D films, allowing theater owners the flexibility to exhibit either type of film.As at December 31, 2013, there were 59 IMAX 3D GT and IMAX 3D SR theater systems in operation compared to 82 IMAX 3D GT and IMAX 3D SRtheater systems in operation as at December 31, 2012. The decrease in the number of 3D GT and 3D SR theater systems is largely attributable to theconversion of existing 3D GT and 3D SR theater systems to IMAX digital theater systems.IMAX MPX Theater Systems. In 2003, the Company launched a large-format theater system designed specifically for use in multiplex theaters. Knownas IMAX MPX, this theater system had lower capital and operating costs than other IMAX theater systems and was intended to improve a multiplex owner’sfinancial returns and to allow for the installation of IMAX theater systems in markets that might previously not have been able to support one. The IMAXdigital theater system has supplanted the IMAX MPX theater system as the Company’s multiplex product. Accordingly, all IMAX MPX theater systems havebeen upgraded to IMAX digital theater systems. 9Table of ContentsIMAX Digital: Xenon Theater Systems. In July 2008, the Company introduced a proprietary IMAX xenon-based digital projection system that itbelieves delivers higher quality imagery compared with other digital systems and that is consistent with the Company’s brand. As at December 31, 2013, theCompany had installed 696 xenon-based digital theater systems, including 130 upgrades, and has an additional 345 xenon-based digital theater systems in itsbacklog.IMAX Digital: Laser Theater Systems. One of the Company’s key initiatives is the development of a next-generation laser-based digital projectionsystem, which it plans to begin rolling out at the end of 2014. The Company believes the IMAX laser projectors will present greater brightness and clarity, awider colour gamut and deeper blacks, and consume less power and last longer than existing digital technology, capable of illuminating the largest screens inthe IMAX theater network. As at December 31, 2013, the Company had 62 laser-based digital theater systems in its backlog.FilmsFilm Production and Digital Re-mastering (IMAX DMR)In 2002, the Company developed a proprietary technology to digitally re-master Hollywood films into IMAX digital cinema package format or 15/70-format film for exhibition in IMAX theaters at a modest cost that is incurred by the Company. This system, known as IMAX DMR, digitally enhances theimage resolution of motion picture films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels forwhich The IMAX Experience is known. In a typical IMAX DMR film arrangement, the Company will receive a percentage, which generally ranges from 10-15%, of net box-office receipts of a film from the film studio in exchange for the conversion of the film to the IMAX DMR format and for access to IMAX’spremium distribution and marketing platform. The box-office performance of IMAX DMR releases has positioned IMAX theaters as a key premiumdistribution platform for Hollywood films, which is separate and distinct from their wider theatrical release.Factors other than the IMAX DMR format, and IMAX’s proprietary projection and sound technology, are increasingly differentiating IMAX contentfrom other film content. Filmmakers are choosing IMAX cameras to shoot selected scenes to increase the audience’s immersion in the film and takingadvantage of the unique dimensions of the IMAX screen by shooting the film in a larger aspect ratio. Several recent films have featured select sequences shotwith IMAX cameras including Star Trek Into Darkness: An IMAX 3D Experience, released in May 2013 and The Hunger Games: Catching Fire: TheIMAX Experience, released in November 2013 as well as The Dark Knight Rises: The IMAX Experience in July 2012, which featured over an hour offootage shot with IMAX cameras. In addition, several recent movies, including Oblivion: The IMAX Experience in 2013 and Skyfall: The IMAX Experiencein 2012, have featured footage taking advantage of the larger projected IMAX aspect ratio. IMAX theaters therefore serve as an additional distribution platformfor Hollywood films, just as home video and pay-per-view are ancillary distribution platforms. In some cases, the Company may also have certaindistribution rights to the films produced using its IMAX DMR technology.The IMAX DMR process involves the following: • in certain instances, scanning, at the highest possible resolution, each individual frame of the movie and converting it into a digital image; • optimizing the image using proprietary image enhancement tools; • enhancing the digital image using techniques such as sharpening, color correction, grain and noise removal and the elimination of unsteadinessand removal of unwanted artifacts; • recording the enhanced digital image onto IMAX 15/70-format film or IMAX digital cinema package (“DCP”) format; and • specially re-mastering the sound track to take full advantage of the unique sound system of IMAX theater systems.The first IMAX DMR film, Apollo 13: The IMAX Experience, produced in conjunction with Universal Pictures and Imagine Entertainment, wasreleased in September 2002 to 48 IMAX theaters. One of the more recent IMAX DMR films, The Hobbit: The Desolation of Smaug: An IMAX 3DExperience was released to 528 IMAX theaters. Since the release of Apollo 13: The IMAX Experience, an additional 156 IMAX DMR films have beenreleased to the IMAX theater network as at December 31, 2013.Recent advances in the IMAX DMR process allow the re-mastering process to meet aggressive film production schedules. The Company has decreasedthe length of time it takes to reformat a film with its IMAX DMR technology. Apollo 13: The IMAX Experience, released in September 2002, was re-masteredin 16 weeks, while certain current films can be re-mastered in less than one week. The IMAX DMR conversion of simultaneous, or “day-and-date” releasesare done in parallel with the movie’s filming and editing, which is necessary for the simultaneous release of an IMAX DMR film with the domestic release toconventional theaters. 10Table of ContentsThe original soundtrack of a film to be released to the IMAX network is re-mastered for the IMAX five or six-channel digital sound systems for theIMAX DMR release. Unlike the soundtracks played in conventional theaters, IMAX re-mastered soundtracks are uncompressed and full fidelity. IMAXsound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater seat is in a good listeningposition.The Company believes that its international expansion is an important driver of future growth for the Company. In fact, during the year endedDecember 31, 2013, 54.0% of the Company’s gross box-office from IMAX DMR films was generated in international markets, which was the first time in theCompany’s history that international gross box-office exceeded gross box-office from the United States and Canada. The Company believes that the growth ininternational box-office has been bolstered by the Company’s strategy of supplementing the Company’s film slate of Hollywood DMR titles with appealinglocal IMAX DMR releases in select markets. In 2013, the Company released nine local language IMAX DMR films, including five in China and one in each ofJapan, Russia, France, and India, compared with five local-language IMAX DMR films in 2012, including four in China and one in France. The Companyexpects to announce additional local language IMAX DMR films to be released to the IMAX network in 2014 and beyond.In 2013, 38 films were converted through the IMAX DMR process and released to theaters in the IMAX network by film studios as compared to 35films in 2012. These films were: • The Grandmaster: The IMAX Experience (Jet Tone Films and Sil-Metropole Organization, January 2013, China only); • Hansel & Gretel: Witch Hunters: An IMAX 3D Experience (Paramount Pictures, January 2013); • Top Gun: An IMAX 3D Experience (Paramount Pictures, February 2013); • Journey to the West: Conquering the Demons: An IMAX 3D Experience (Bingo Movie Development Ltd, February 2013, China only); • A Good Day to Die Hard: The IMAX Experience (Twentieth Century Fox, February 2013); • Jack the Giant Slayer: An IMAX 3D Experience (Warner Bros. Pictures, March 2013); • Oz: The Great and Powerful: An IMAX 3D Experience (Walt Disney Pictures, March 2013); • G.I. Joe: Retaliation: An IMAX 3D Experience (Paramount Pictures, March 2013); • Dragon Ball Z: Battle of the Gods: An IMAX 3D Experience (Toei Animation Company, March 2013, Japan only); • Jurassic Park: An IMAX 3D Experience (Universal Pictures, April 2013); • Oblivion: The IMAX Experience (Universal Pictures, April 2013); • Iron Man 3: An IMAX 3D Experience (Walt Disney Pictures, May 2013); • Star Trek: Into Darkness: An IMAX 3D Experience (Paramount Pictures, May 2013); • Fast & Furious 6: The IMAX Experience (Universal Pictures, May 2013, select international markets); • After Earth: The IMAX Experience (Columbia Pictures, May 2013); • Man of Steel: The IMAX Experience (Warner Bros. Pictures, June 2013); • World War Z: An IMAX 3D Experience (Paramount Pictures, June 2013, select international markets); • Despicable Me 2: An IMAX 3D Experience (Universal Pictures, July 2013, select international markets); • White House Down: The IMAX Experience (Sony Pictures, July 2013, select international markets); • Man of Tai Chi: The IMAX Experience (China Film Group, Wanda Group, Village Roadshow, July 2013, China only); • Lone Ranger: The IMAX Experience (Walt Disney Pictures, July 2013, select international markets); • Pacific Rim: An IMAX 3D Experience (Warner Bros. Pictures, July 2013); • Elysium: The IMAX Experience (Sony Pictures, August 2013); • The Mortal Instruments: City of Bones: The IMAX Experience (Sony Pictures, August 2013); • Riddick Sequel: The IMAX Experience (Universal Pictures, September 2013); • The Wizard of Oz: An IMAX 3D Experience (Picturehouse, September 2013); • Young Detective Dee: Rise of the Sea Dragon: An IMAX 3D Experience (Huayi Bros., September 2013, China only); • Metallica Through the Never: An IMAX 3D Experience (Warner Bros. Pictures, September 2013); • Gravity: An IMAX 3D Experience (Warner Bros. Pictures, October 2013); • Stalingrad: An IMAX 3D Experience (AR Films, October 2013, Russia and the CIS only); • Captain Phillips: The IMAX Experience (Sony Pictures, October 2013); 11Table of Contents • The Young and Prodigious T.S. Spivet: An IMAX 3D Experience (Epithète Films., October 2013, France only); • Thor: The Dark World: An IMAX 3D Experience (Walt Disney Pictures, October 2013, select international markets); • Ender’s Game: The IMAX Experience (Lionsgate, November 2013); • The Hunger Games: Catching Fire: The IMAX Experience (Lionsgate, November 2013); • The Hobbit: The Desolation of Smaug: An IMAX 3D Experience (Warner Bros. Pictures, December 2013); • Dhoom 3: The IMAX Experience (Yash Raj Films, December 2013, India only); and • Police Story: An IMAX 3D Experience (China Vision, December 2013, China only).In addition, in conjunction with MacGillivray Freeman Films (“MFF”), the Company did a limited release of an IMAX original production, Journey tothe South Pacific, on November 27, 2013. A broader release of Journey to the South Pacific is scheduled in 2014.To date, the Company has announced the following 14 DMR films to be released in 2014 to the IMAX theater network: • Jack Ryan: Shadow Recruit: The IMAX Experience (Paramount Pictures, January 2014); • I, Frankenstein: An IMAX 3D Experience (Lionsgate, January 2014); • The Monkey King: The IMAX Experience (Global Star Productions, January 2014, China only); • Robocop: The IMAX Experience (Metro-Goldwyn-Mayer Studios, Inc., February 2014); • 300: Rise of an Empire: An IMAX 3D Experience (Warner Bros. Pictures, March 2014); • Divergent: The IMAX Experience (Summit Entertainment, March 2014); • Noah: The IMAX Experience (Paramount Pictures, March 2014); • Captain America: The Winter Soldier: An IMAX 3D Experience (Marvel Entertainment, April 2014); • The Amazing Spider-Man 2: An IMAX 3D Experience (Sony Pictures, May 2014); • Godzilla: The IMAX Experience (Warner Bros. Pictures, May 2014); • Edge of Tomorrow: The IMAX Experience (Warner Bros. Pictures, June 2014); • Transformers: Age of Extinction: An IMAX 3D Experience (Paramount Pictures, June 2014); • Interstellar: The IMAX Experience (Paramount Pictures and Warner Bros. Pictures, November 2014); and • The Hobbit: There and Back Again: An IMAX 3D Experience (Warner Bros. Pictures, December 2014).The Company remains in active negotiations with all of the major Hollywood studios for additional films to fill out its short and long-term film slate,and anticipates that a similar number of IMAX DMR films will be released to the IMAX network in 2014 as were released in 2013.In addition, in conjunction with Warner Bros. Pictures (“WB”), the Company will release an IMAX original production, Island of Lemurs:Madagascar, on April 4, 2014.The Company expects to announce additional local language IMAX DMR films to be released to the IMAX theater network in 2014 and beyond.Supplementing the Company’s film slate of Hollywood DMR titles with appealing local DMR titles is an important component of the Company’s internationalfilm strategy.Film DistributionThe Company is also a distributor of large-format films, primarily for its institutional theater partners. The Company generally distributes films whichit produces or for which it has acquired distribution rights from independent producers. The Company receives either a percentage of the theater box-officereceipts or a fixed amount as a distribution fee.Films produced by the Company are typically financed through third parties, whereby the Company will generally receive a film production fee inexchange for producing the film and a distribution fee for distributing the film. The ownership rights to such films may be held by the film sponsors, the filminvestors and/or the Company. As at December 31, 2013, the Company’s film library consisted of 303 IMAX original films, which cover such subjects asspace, wildlife, music, history and natural wonders. The Company currently has distribution rights with respect to 45 of such films. Large-format films thathave been successfully distributed by the Company include: Journey to the South Pacific, which had a limited release in November 2013 and has grossed$0.1 million as at the end of 2013; To the Arctic 3D, which was released in April 2012 and has grossed over $21.6 million as at the end of 2013; Born to beWild 3D, which was released by the Company and WB in April 2011 and has grossed over $36.0 million as at the end of 2013; Hubble 3D, which was 12Table of Contentsreleased by the Company and WB in March 2010 and has grossed over $59.6 million as at the end of 2013; Under the Sea 3D, which was released by theCompany and WB in February 2009 and has grossed over $47.3 million as at the end of 2013; Deep Sea 3D, which was released by the Company and WBin March 2006 and has grossed more than $95.5 million as at the end of 2013; SPACE STATION, which was released in April 2002 and has grossed over$123.7 million as at the end of 2013 and T-REX: Back to the Cretaceous, which was released by the Company in 1998 and has grossed over $103.9 millionas at the end of 2013. Large-format films have significantly longer exhibition periods than conventional commercial films and many of the films in the large-format library have remained popular for many decades, including the films To Fly! (1976), Grand Canyon — The Hidden Secrets (1984) and TheDream Is Alive (1985).Film Post-ProductionIMAX Post/DKP Inc. (formerly David Keighley Productions 70MM Inc.), a wholly-owned subsidiary of the Company, provides film post-productionand quality control services for large-format films (whether produced internally or externally), and digital post-production services.OtherTheater OperationsAs at December 31, 2013 and 2012, the Company had four owned and operated theaters on leased premises. In addition, the Company has acommercial arrangement with one theater resulting in the sharing of profits and losses. The Company also provides management services to two theaters. OnJanuary 30, 2014, the Company discontinued the operations of its owned and operated Nyack theater.CamerasThe Company rents its proprietary 2D and 3D large-format film and digital cameras to third party production companies. The Company also providesproduction technical support and post-production services for a fee. All IMAX 2D and 3D film cameras run 65mm negative film, exposing 15 perforationsper frame and resulting in an image area nearly 10x larger than standard 35mm film. The Company’s film-based 3D camera, which is a patented, state-of-the-art dual and single filmstrip 3D camera, is among the most advanced motion picture cameras in the world and is the only 3D camera of its kind. The IMAX3D camera simultaneously shoots left-eye and right-eye images and enables filmmakers to access a variety of locations, such as underwater or aboard aircraft.The Company has also recently developed a high speed 3D digital camera which utilizes a pair of the world’s largest digital sensors.Due to the increasing success major Hollywood filmmakers have had with IMAX cameras, the Company has identified the development andmanufacture of additional IMAX cameras as an important research and development initiative.The Company maintains cameras and other film equipment and also offers production advice and technical assistance to both documentary andHollywood filmmakers.MARKETING AND CUSTOMERSThe Company markets its theater systems through a direct sales force and marketing staff located in offices in Canada, the United States, GreaterChina, Europe and Asia. In addition, the Company has agreements with consultants, business brokers and real estate professionals to locate potentialcustomers and theater sites for the Company on a commission basis. During 2012, the Company re-invested in its brand with a consumer brand marketingcampaign that encompasses social media, in-theater marketing and Internet advertising. During 2013, the Company restructured its Marketing team toimprove efficiency, partner more closely with exhibitors and studios and improve direct-to-consumer communication efforts. The Company has developed asignificant and growing social media presence and is making heavy use of digital communications to reach a global audience, with a particular emphasis onChina. 13Table of ContentsThe commercial multiplex theater segment of the Company’s theater network is now its largest segment, comprising 701 IMAX theaters, or 83.8%, ofthe 837 IMAX theaters open as at December 31, 2013. The Company’s institutional customers include science and natural history museums, zoos, aquariaand other educational and cultural centers. The Company also sells or leases its theater systems to theme parks, private home theaters, tourist destinationsites, fairs and expositions (the Commercial Destination segment). At December 31, 2013, approximately 49.3% of all opened IMAX theaters were in locationsoutside of the United States and Canada. The following table outlines the breakdown of the theater network by type and geographic location as at December 31: 2013 Theater Network Base 2012 Theater Network Base CommercialMultiplex CommercialDestination Institutional Total CommercialMultiplex CommercialDestination Institutional Total United States 319 6 55 380 290 6 57 353 Canada 34 2 8 44 34 2 7 43 Greater China(1) 150 — 23 173 108 — 20 128 Western Europe 49 7 11 67 42 7 11 60 Asia (excluding Greater China) 61 3 7 71 52 3 7 62 Russia & the CIS 40 — — 40 32 — — 32 Latin America(2) 25 — 11 36 19 — 10 29 Rest of the World 23 1 2 26 21 1 2 24 Total(3) 701 19 117 837 598 19 114 731 (1)Greater China includes the People’s Republic of China, Hong Kong, Taiwan and Macau.(2)Latin America includes South America, Central America and Mexico.(3)Includes 382 and 316 theater systems in operation as at December 31, 2013 and 2012, respectively, under joint revenue sharing arrangements.For information on revenue breakdown by geographic area, see note 19 to the accompanying audited consolidated financial statements in Item 8. TheCompany’s foreign operations are subject to certain risks. See “Risk Factors – The Company conducts business internationally which exposes it touncertainties and risks that could negatively affect its operations and sales” and “Risk Factors – The Company faces risks in connection with the continuedexpansion of its business in China” in Item 1A. The Company’s two largest customers as at December 31, 2013, collectively represent 37.6% of theCompany’s network base of theaters and 19.9% of revenues.INDUSTRY AND COMPETITIONIn recent years, as the motion picture industry has transitioned from film projection to digital projection, a number of companies have introduced digital3D projection technology and, since 2008, an increasing number of Hollywood features have been exhibited using these technologies. According to the NationalAssociation of Theater Owners, as at December 31, 2013, there were approximately 16,277 conventional-sized screens in North American multiplexesequipped with such digital 3D systems. In 2008, the Company introduced its proprietary digitally-based projector which is capable of 2D and 3Dpresentations on large screens and which comprises the majority of its current (and, the Company expects, virtually all of its future) theater system sales. Overthe last several years, a number of commercial exhibitors have introduced their own large screen branded theaters. In addition, the Company has historicallycompeted with manufacturers of large-format film projectors. The Company believes that all of these alternative film formats deliver images and experiencesthat are inferior to The IMAX Experience.The Company may also face competition in the future from companies in the entertainment industry with new technologies and/or substantially greatercapital resources to develop and support them. The Company also faces in-home competition from a number of alternative motion picture distributionchannels such as home video, pay-per-view, video-on-demand, DVD, Internet and syndicated and broadcast television. The Company further competes for thepublic’s leisure time and disposable income with other forms of entertainment, including gaming, sporting events, concerts, live theater, social media andrestaurants.The Company believes that its competitive strengths include the value of the IMAX brand name, the premium IMAX consumer experience, the design,quality and historic reliability rate of IMAX theater systems, the return on investment of an IMAX theater, the number and quality of IMAX films that itdistributes, the relationships the Company maintains with prominent Hollywood filmmakers, a number of whom desire to film portions of their movies withIMAX cameras, the quality of the sound system components included with the IMAX theater, the availability of Hollywood event films to IMAX theatersthrough IMAX DMR technology, consumer loyalty and the level of the Company’s service and maintenance and extended warranty efforts. The Companybelieves that all of the best performing premium theaters in the world are IMAX theaters. 14Table of ContentsTHE IMAX BRANDThe world-famous IMAX brand stands for the highest-quality, most immersive motion picture entertainment. Consumer research conducted for theCompany in the U.S. by a third-party research firm shows that the IMAX brand is known for cutting-edge technology and an experience that immersesaudiences in the movie. The research also shows that the brand inspires strong consumer loyalty and that consumers place a premium on it, often willing totravel significantly farther and pay more for The IMAX Experience than for a conventional movie. The Company believes that its significant brand loyaltyamong consumers provides it with a strong, sustainable position in the exhibition industry. Recognition of the IMAX brand name cuts across geographic anddemographic boundaries. The Company believes that the strength of the IMAX brand has resulted in IMAX DMR films significantly outperforming otherformats on a per screen basis.The Company believes the strength of the IMAX brand is an asset that has helped to establish the IMAX theater network as a unique and desirablerelease window for Hollywood movies. In 2013, the Company reinvested in its brand with consumer brand marketing that encompassed social media, in-theater marketing and traditional and digital advertising. The company also recruited a team of seasoned international marketing talent to improve the globalreach and relevance of its marketing activities.RESEARCH AND DEVELOPMENTThe Company believes that it is one of the world’s leading entertainment technology companies with significant proprietary expertise in digital and film-based projection and sound system component design, engineering and imaging technology, particularly in 3D. During 2012 and 2013, the Companyincreased its level of research and development as it is developing its next-generation laser-based projection system which is expected to provide greaterbrightness and clarity, a wider colour gamut and deeper blacks, while consuming less power and lasting longer than existing digital technology, to ensure thatthe Company continues to provide the highest quality, premier movie going experience available to consumers. A higher level of research and development isexpected to continue in 2014 to support the development of the laser-based digital projection system. In addition, the Company plans to continue research anddevelopment activity in the future in other areas considered important to the Company’s continued commercial success, including further improving thereliability of its projectors, developing and manufacturing more IMAX cameras, enhancing the Company’s 2D and 3D image quality, expanding theapplicability of the Company’s digital technology, developing IMAX theater systems’ capabilities in both home and live entertainment and further enhancingthe IMAX theater and sound system design through the addition of more channels, improvements to the Company’s proprietary tuning system and masteringprocesses.The motion picture industry has been, and will continue to be, affected by the development of digital technologies, particularly in the areas of contentcreation (image capture), post-production, digital re-mastering (such as IMAX DMR), distribution and display (projection). As such, the Company has madesignificant investments in digital technologies, including the development of a proprietary technology to digitally enhance image resolution and quality ofmotion picture films, the creation of an IMAX digital projector and the licensing of prominent laser illumination technology. Accordingly, the Company holds anumber of patents, patents pending and other intellectual property rights in these areas. In addition, the Company holds numerous digital patents andrelationships with key manufacturers and suppliers in digital technology.In order to keep the Company at the forefront of digital technology, the Company has made strategic investments in laser technology. In 2011, theCompany announced the completion of a deal in which it secured certain license rights to a portfolio of intellectual property in the digital cinema field ownedby the Eastman Kodak Company (“Kodak”). The transaction involves exclusive rights to technology related to laser projection as well as rights in the digitalcinema field to a broader range of Kodak technology. On February 7, 2012, the Company announced an agreement with Barco N.V. (“Barco”) to co-develop alaser-based digital projection system that incorporates Kodak technology. The Company believes that these arrangements with Kodak and Barco will enableIMAX laser projectors to present greater brightness and clarity, a wider color gamut and deeper blacks, and consume less power and last longer than existingdigital technology. The Company believes that a laser projection solution will be the first IMAX digital projection system capable of illuminating the largestscreens in its network, which are currently film-based, and will enhance the access of these screens to the full array of IMAX digital content. As ofDecember 31, 2013, the Company had 62 laser-based digital theater systems in its backlog.In 2009, the Company developed its first 3D digital camera primarily for use in IMAX documentary productions. Portions of Born to Be Wild 3D werefilmed with the IMAX 3D digital camera and the camera has subsequently been used to film portions of a new wildlife documentary, Island of Lemurs:Madagascar scheduled to be released in 2014. Due to the increasing success major Hollywood filmmakers have had with IMAX cameras, the Company hasidentified the development and manufacture of additional IMAX cameras as an important research and development initiative. To that end, the Company isalso in early stages of development of an IMAX 2D digital camera for use by Hollywood directors who are seeking IMAX differentiation for portions of theirmovies. 15Table of ContentsThe Company expects to deploy its proprietary expertise in image technology and 3D technology, as well as its proprietary film content and the IMAXbrand, for applications in in-home entertainment technology. In December 2013, the Company announced a joint venture with TCL to design, develop,manufacture and sell a premium home theater system. The premium home theater system is expected to incorporate 4K projection technology, as well ascomponents of IMAX’s projection and sound technology adapted for a broader home environment. The premium home theater system will also incorporatePRIMA technology that will enable the viewing of current theatrical releases that have been digitally re-mastered with IMAX enhancement technology.For the years ended December 31, 2013, 2012, and 2011, the Company recorded research and development expenses of $14.8 million, $11.4 millionand $7.8 million, respectively. As at December 31, 2013, 90 of the Company’s employees were connected with research and development projects.MANUFACTURING AND SERVICEProjector Component ManufacturingThe Company assembles the projector of its theater systems at its office in Mississauga, Ontario, Canada (near Toronto). The Company develops anddesigns all of the key elements of the proprietary technology involved in this component. Fabrication of a majority of parts and sub-assemblies issubcontracted to a group of carefully pre-qualified third-party suppliers. Manufacture and supply contracts are signed for the delivery of the component on anorder-by-order basis. The Company believes its significant suppliers will continue to supply quality products in quantities sufficient to satisfy its needs. TheCompany inspects all parts and sub-assemblies, completes the final assembly and then subjects the projector to comprehensive testing individually and as asystem prior to shipment. In 2013, these projectors, including the Company’s digital projection system, had reliability rates based on scheduled shows ofapproximately 99.9%.Sound System Component ManufacturingThe Company develops, designs and assembles the key elements of its theater sound system component. The standard IMAX theater sound systemcomponent comprises parts from a variety of sources, with approximately 50% of the materials of each sound system attributable to proprietary partsprovided under original equipment manufacturers agreements with outside vendors. These proprietary parts include custom loudspeaker enclosures andhorns, specialized amplifiers, and signal processing and control equipment. The Company inspects all parts and sub-assemblies, completes the finalassembly and then subjects the sound system component to comprehensive testing individually and as a system prior to shipment.Screen and Other ComponentsThe Company purchases its screen component and glasses cleaning equipment from third parties. The standard screen system component is comprisedof a projection screen manufactured to IMAX specifications and a frame to hang the projection screen. The proprietary glasses cleaning machine is a stand-alone unit that is connected to the theater’s water and electrical supply to automate the cleaning of 3D glasses.Maintenance and Extended Warranty ServicesThe Company also provides ongoing maintenance and extended warranty services to IMAX theater systems. These arrangements are usually for aseparate fee, although the Company often includes free service in the initial year of an arrangement. The maintenance and extended warranty arrangementsinclude service, maintenance and replacement parts for theater systems.To support the IMAX theater network, the Company has personnel stationed in major markets throughout the world who provide periodic andemergency maintenance and extended warranty services on existing theater systems. The Company provides various levels of maintenance and warrantyservices, which are priced accordingly. Under full service programs, Company personnel typically visit each theater every six months to provide preventativemaintenance, cleaning and inspection services and emergency visits to resolve problems and issues with the theater system. Under some arrangements,customers can elect to participate in a service partnership program whereby the Company trains a customer’s technician to carry out certain aspects ofmaintenance. Under such shared maintenance arrangements, the Company participates in certain of the customer’s maintenance checks each year, provides aspecified number of emergency visits and provides spare parts, as necessary. For digital systems, the Company provides pre-emptive maintenance throughminor bug fixes, and also provides remote system monitoring and a network operations center that provides continuous access to product experts. 16Table of ContentsPATENTS AND TRADEMARKSThe Company’s inventions cover various aspects of its proprietary technology and many of these inventions are protected by Letters of Patent orapplications filed throughout the world, most significantly in the United States, Canada, Belgium, Japan, France, Germany and the United Kingdom. Thesubject matter covered by these patents, applications and other licenses encompasses theater design and geometry, electronic circuitry and mechanismsemployed in projectors and projection equipment (including 3D projection equipment), a method for synchronizing digital data, a method of generatingstereoscopic (3D) imaging data from a monoscopic (2D) source, a process for digitally re-mastering 35mm films into large-format, a method for increasing thedynamic range and contrast of projectors, a method for visibly seaming or superimposing images from multiple projectors and other inventions relating todigital projectors. In 2011, the Company entered into a deal in which it secured the exclusive license rights from Kodak to a portfolio of more than 50 patentfamilies covering laser projection technology as well as certain exclusive rights to a broad range of Kodak patents in the field of digital cinema. The Companyhas been and will continue to be diligent in the protection of its proprietary interests.As at December 31, 2013, the Company holds or licenses 99 patents, has 35 patents pending in the United States and has corresponding patents orfiled applications in many countries throughout the world. While the Company considers its patents to be important to the overall conduct of its business, itdoes not consider any particular patent essential to its operations. Certain of the Company’s patents in the United States, Canada and Japan for improvementsto the IMAX projection system components expire between 2016 and 2028.The Company owns or otherwise has rights to trademarks and trade names used in conjunction with the sale of its products, systems and services. Thefollowing trademarks are considered significant in terms of the current and contemplated operations of the Company: IMAX®, IMAX® Dome, IMAX® 3D,IMAX® 3D Dome, Experience It In IMAX®, The IMAX Experience®, An IMAX Experience®, An IMAX 3D Experience®, IMAX DMR®, DMR®, IMAXnXos®, IMAX think big®, think big® and IMAX Is Believing. These trademarks are widely protected by registration or common law throughout the world.The Company also owns the service mark IMAX THEATRETM.EMPLOYEESThe Company had 541 employees as at December 31, 2013, compared to 526 employees as at December 31, 2012. Both employee counts excludehourly employees at the Company’s owned and operated theaters.AVAILABLE INFORMATIONThe Company makes available, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-Kas soon as reasonably practicable after such filings have been made with the United States Securities and Exchange Commission (the “SEC”).The public mayread and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, as well asobtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Reports may be obtained through the Company’swebsite at www.imax.com or by calling the Company’s Investor Relations Department at 212-821-0100. 17Table of ContentsItem 1A.Risk FactorsIf any of the risks described below occurs, the Company’s business, operating results and financial condition could be materially adversely affected.The risks described below are not the only ones the Company faces. Additional risks not presently known to the Company or that it deems immaterial,may also impair its business or operations.The Company depends principally on commercial movie exhibitors to purchase or lease IMAX theater systems, to supply box-office revenueunder joint revenue sharing arrangements and under its sales and sales-type lease agreements and to supply venues in which to exhibit IMAXDMR films and the Company can make no assurances that exhibitors will continue to do any of these things.The Company’s primary customers are commercial multiplex exhibitors, whose systems represent 95.3% of the 407 systems in the Company’s backlogas at December 31, 2013. The Company is unable to predict if, or when, they or other exhibitors will purchase or lease IMAX theater systems or enter intojoint revenue sharing arrangements with the Company, or whether any of the Company’s existing customers will continue to do any of the foregoing. Ifexhibitors choose to reduce their levels of expansion or decide not to purchase or lease IMAX theater systems or enter into joint revenue sharing arrangementswith the Company, the Company’s revenues would not increase at an anticipated rate and motion picture studios may be less willing to convert their films intothe Company’s format for exhibition in commercial IMAX theaters. As a result, the Company’s future revenues and cash flows could be adversely affected.The success of the IMAX theater network is directly related to the availability and success of IMAX DMR films for which there can be noguarantee.An important factor affecting the growth and success of the IMAX theater network is the availability of films for IMAX theaters and the box-officeperformance of such films. The Company itself produces only a small number of such films and, as a result, the Company relies principally on filmsproduced by third party filmmakers and studios, both Hollywood and local language features converted into the Company’s large format using theCompany’s IMAX DMR technology. In 2013, 38 IMAX DMR films were released by studios to the worldwide IMAX theater network. There is no guaranteethat filmmakers and studios will continue to release films to the IMAX theater network, or that the films they produce will be commercially successful. Thesteady flow and successful box-office performance of IMAX DMR releases have become increasingly important to the Company’s financial performance as thenumber of joint revenue sharing arrangements included in the overall IMAX network has grown considerably. The Company is increasingly directly impactedby box-office results for the films released to the IMAX network through its joint revenue sharing arrangements as well as through the percentage of the box-office receipts the Company receives from the studios releasing IMAX DMR films, and the Company’s continued ability to find suitable partners for jointrevenue share arrangements and to sell IMAX theater systems also depends on the number and commercial success of films released to its network. Thecommercial success of films released to IMAX theaters depends on a number of factors outside of the Company’s control, including whether the film receivescritical acclaim, the timing of its release, the success of the marketing efforts of the studio releasing the film and consumer preferences. Moreover, films can besubject to delays in production or changes in release schedule, which can negatively impact the number, timing and quality of IMAX DMR and IMAXoriginal films released to the IMAX theater network.The introduction of new, competing products and technologies could harm the Company’s business.The out-of-home entertainment industry is very competitive, and the Company faces a number of competitive challenges. According to the NationalAssociation of Theater Owners, as at December 31, 2013, there were approximately 16,277 conventional-sized screens in North American multiplexesequipped with digital 3D systems. In addition, some commercial exhibitors have introduced their own branded, large-screen 3D auditoriums and in manycases have marketed those auditoriums as having the same quality or attributes as an IMAX theater. The Company also may face competition in the futurefrom companies in the entertainment industry with new technologies and/or substantially greater capital resources to develop and support them. If theCompany is unable to continue to deliver a premium movie-going experience, or if other technologies surpass those of the Company, the Company may beunable to continue to produce theater systems which are premium to, or differentiated from, other theater systems. If the Company is unable to produce adifferentiated theater experience, consumers may be unwilling to pay the price premiums associated with the cost of IMAX theater tickets and box-officeperformance of IMAX films may decline. Declining box-office performance of IMAX films would materially and adversely harm the Company’s business andprospects. The Company also faces in-home competition from a number of alternative motion picture distribution channels such as home video, pay-per-view,video-on-demand, DVD, Internet and syndicated and broadcast television. The Company further competes for the public’s leisure time and disposable incomewith other forms of entertainment, including gaming, sporting events, concerts, live theater, social media and restaurants. 18Table of ContentsFailure to respond adequately or in a timely fashion to changes and advancements in digital technology could negatively affect theCompany’s business.There have been a number of advancements in the digital cinema field in recent years. In order to keep pace with these changes and in order to continueto provide an experience which is premium to and differentiated from conventional cinema experiences, the Company has made, and expects to continue tomake, significant investments in digital technology in the form of research and development and the acquisition of third party intellectual property and/orproprietary technology. Recently, the Company has made significant investments in laser technology as part of its effort to develop a next-generation laser-baseddigital projection system. The process of developing new technologies is inherently uncertain, and the Company can provide no assurance its investments willresult in commercially viable advancements to the Company’s existing products or in commercially successful new products, or that any such advancementsor products will be developed within the timeframe expected.The Company conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, salesand future growth prospects.A significant portion of the Company’s revenues are generated by customers located outside the United States and Canada. Approximately 53%, 48%and 46% of its revenues were derived outside of the United States and Canada in 2013, 2012 and 2011, respectively. In fact, 2013 marked the first year in theCompany’s history that revenues and gross box-office derived from outside the United States and Canada exceeded revenues and gross box-office from theUnited States and Canada. As at December 31, 2013, approximately 86.5% of IMAX theater systems arrangements in backlog are scheduled to be installed ininternational markets. Accordingly, the Company expects to expand its international operations to account for an increasingly significant portion of itsrevenues in the future. There are a number of risks associated with operating in international markets that could negatively affect the Company’s operations,sales and future growth prospects. These risks include: • new restrictions on access to markets, both for theater systems and films; • unusual or burdensome foreign laws or regulatory requirements or unexpected changes to those laws or requirements; • fluctuations in the value of foreign currency versus the U.S. dollar and potential currency devaluations; • new tariffs, trade protection measures, import or export licensing requirements, trade embargoes and other trade barriers; • imposition of foreign exchange controls in such foreign jurisdictions; • dependence on foreign distributors and their sales channels; • difficulties in staffing and managing foreign operations; • local business practices that can present challenges to compliance with applicable anti-corruption and bribery laws; • difficulties in establishing market-appropriate pricing; • adverse changes in monetary and/or tax policies; • poor recognition of intellectual property rights; • inflation; • requirements to provide performance bonds and letters of credit to international customers to secure system component deliveries; and • political, economic and social instability. 19Table of ContentsAs the Company begins to expand the number of its theaters under joint revenue sharing arrangements in international markets, the Company’srevenues from its international operations will become increasingly dependent on the box-office performance of its films. In addition, as the Company’sinternational network has expanded, the Company has signed deals with movie studios in other countries to convert their films to the Company’s large formatand release them to IMAX theaters. The Company may be unable to select films which will be successful in international markets or unsuccessful in selectingthe right mix of Hollywood and local DMR films in a particular country or region. Also, conflicts in international release schedules may make it difficult torelease every IMAX film in certain markets. Finally, box-office reporting in certain countries may be less accurate and therefore less reliable than in the UnitedStates and Canada.The Company faces risks in connection with the continued expansion of its business in China.At present, Greater China is the Company’s second-largest and fastest growing market. As at December 31, 2013, the Company had 173 theatersoperating in Greater China with an additional 239 theaters (includes 2 upgrades) in backlog that are scheduled to be installed in Greater China by 2021. TheCompany has made, and continues to make significant investments in its China business. In 2011, the Company formed IMAX China, a wholly-ownedsubsidiary of the Company, which as of December 31, 2013 had offices in Shanghai and Beijing and 57 employees. In 2013, the Company and WandaCinema Line Corporation (“Wanda”) announced amendments of the parties’ original 2011 joint revenue sharing arrangement for an additional 120 IMAXtheaters to be located throughout China. The most recent expansion brings Wanda’s total commitment to 210 IMAX theater systems, of which 195 are underthe parties’ joint revenue sharing arrangement, and which makes it the Company’s largest single international partnership to date. In addition, the Companyhas released an increasing number of Chinese IMAX DMR films to its growing network in Greater China in recent years, including 5 films in 2013. InOctober 2013, the Company also announced its joint venture with TCL to design, develop and manufacture a premium home theater system, which is set tofurther expand the scope of the Company’s operations in China. As the Company continues to further its commitment to China, it is increasingly exposed torisks in that region. These risks include changes in laws and regulations, currency fluctuations, increased competition and changes in economic conditions,including those related to consumer spending. Adverse developments in these areas could cause the Company to lose some or all of its investment in China andcould cause the Company to fail to achieve anticipated growth.Moreover, certain risks and uncertainties of doing business in China are solely within the control of the Chinese government, and Chinese law regulatesboth the scope of the Company’s investment in China and the business conducted by it within China. For instance, the Chinese government regulates both thenumber and timing or terms of Hollywood films released to the China market. The Company cannot provide assurance that the Chinese government willcontinue to permit the release of IMAX films in China or that the timing of IMAX releases will be favorable to the Company. There are also uncertaintiesregarding the interpretation and application of laws and regulations and the enforceability of intellectual property and contract rights in China. If the Companywere unable to navigate China’s regulatory environment, including with respect to its current customs inquiry, or if the Company were unable to enforce itsintellectual property or contract rights in China, the Company’s business could be adversely impacted. See note 13(g) “Contingencies and Guarantees” of theaccompanying audited consolidated financial statements in Item 8 for more information.Under common ownership, Wanda and AMC together account for a significant and growing portion of the Company’s revenue andbacklog. A deterioration in the Company’s relationship with Wanda and/or AMC could materially, adversely affect the Company’s business,financial condition or results of operation.In 2012, Dalian Wanda Group Co., Ltd (“Dalian Wanda”), the parent company of Wanda Cinema Line (“Wanda”), acquired AMC EntertainmentHoldings, Inc. (“AMC”). Prior to the acquisition, AMC and Wanda were, respectively, the Company’s first and third largest customers. In December 2013,AMC completed an initial public offering of approximately 20% of its outstanding shares, with Dalian Wanda retaining the approximately 80% remaining.Under common ownership, Wanda and AMC together represent approximately 13.9%, 12.2% and 14.1% of the Company’s total revenue in 2013, 2012 and2011, respectively. On December 18, 2013, Wanda exercised its option to expand its joint revenue sharing arrangement with IMAX with 80 additional IMAXtheater systems. With the latest expansion of the Company’s joint revenue sharing arrangement with Wanda, Wanda and AMC together representedapproximately 31% of the Company’s backlog as of December 31, 2013. The share of the Company’s revenue that is generated by Wanda and AMC isexpected to continue to grow as the significant number of Wanda theater systems currently in backlog are opened. No assurance can be given that either Wandaand/or AMC will continue to purchase theater systems and/or enter into joint revenue sharing arrangements with the Company and if so, whether contractualterms will be affected. If the Company does business with either Wanda and/or AMC less frequently or on less favorable terms than currently, the Company’sbusiness, financial condition or results of operations may be adversely affected.The Company is undertaking new lines of business and these new business initiatives may not be successful.The Company is undertaking new lines of business. These initiatives represent new areas of growth for the Company and could include the offering ofnew products and services that may not be accepted by the market. Some areas of potential growth for the Company are in the field of in-home entertainmenttechnology, which is an intensively competitive business and which is dependent on consumer demand, over which the Company has no control. If any newbusiness in which the Company invests or attempts to develop does not progress as planned, the Company may be adversely affected by investment expensesthat have not led to the anticipated results, by the distraction of management from its core business or by damage to its brand or reputation. 20Table of ContentsIn addition, these initiatives may involve the formation of joint ventures and business alliances. While the Company seeks to employ the optimalstructure for each such business alliance, the alliance may require a high level of cooperation with and reliance on our partners and there is a possibility thatthe Company may have disagreements with its relevant partner with respect to financing, technological management, product development, managementstrategies or otherwise. Any such disagreement may cause the joint venture or business alliance to be terminated.The Company may not be able to adequately protect its intellectual property, and competitors could misappropriate its technology or brand,which could weaken its competitive position.The Company depends on its proprietary knowledge regarding IMAX theater systems and digital and film technology. The Company relies principallyupon a combination of copyright, trademark, patent and trade secret laws, restrictions on disclosures and contractual provisions to protect its proprietary andintellectual property rights. These laws and procedures may not be adequate to prevent unauthorized parties from attempting to copy or otherwise obtain theCompany’s processes and technology or deter others from developing similar processes or technology, which could weaken the Company’s competitiveposition and require the Company to incur costs to secure enforcement of its intellectual property rights. The protection provided to the Company’s proprietarytechnology by the laws of foreign jurisdictions may not protect it as fully as the laws of Canada or the United States. The lack of protection afforded tointellectual property rights in certain international jurisdictions may be increasingly problematic given the extent to which future growth of the Company isanticipated to come from foreign jurisdictions. Finally, some of the underlying technologies of the Company’s products and system components are notcovered by patents or patent applications.The Company owns or licenses patents issued and patent applications pending, including those covering its digital projector, digital conversiontechnology and laser illumination technology. The Company’s patents are filed in the United States, often with corresponding patents or filed applications inother jurisdictions, such as Canada, China, Belgium, Japan, France, Germany and the United Kingdom. The patent applications pending may not be issuedor the patents may not provide the Company with any competitive advantages. The patent applications may also be challenged by third parties. Several of theCompany’s issued patents in the United States, Canada and Japan for improvements to IMAX projectors, IMAX 3D Dome and sound system componentsexpire between 2016 and 2028. Any claims or litigation initiated by the Company to protect its proprietary technology could be time consuming, costly anddivert the attention of its technical and management resources.The IMAX brand stands for the highest quality, most immersive motion picture entertainment. Protecting the IMAX brand is a critical element inmaintaining the Company’s relationships with studios and its exhibitor clients. Though the Company relies on a combination of trademark and copyright lawas well as its contractual provisions to protect the IMAX brand, those protections may not be adequate to prevent erosion of the brand over time, particularly inforeign jurisdictions. Erosion of the brand could threaten the demand for the Company’s products and services and impair its ability to grow future revenuestreams.The Company’s implementation of a new enterprise resource planning (“ERP”) system may adversely affect the Company’s business andresults of operations or the effectiveness of internal control over financial reporting.The Company began implementation of a new ERP system in the first quarter of 2013. When implementation is complete, the new ERP system isexpected to deliver a new generation of work processes and information systems. However, ERP implementations are complex and time-consuming projects thatinvolve substantial expenditures on system software and implementation activities that take several years. ERP implementations also require transformation ofbusiness and financial processes in order to reap the benefits of the ERP system. If the Company does not effectively implement the ERP system as planned orif the system does not operate as intended, it could adversely affect the Company’s operations, financial reporting systems, the Company’s ability to producefinancial reports, and/or the effectiveness of internal control over financial reporting. The Company continues to review the implementation effort as well as theimpact on its internal controls over financial reporting and, where appropriate, is making changes to these controls over financial reporting to address thesesystem changes.General political, social and economic conditions can affect the Company’s business by reducing both revenue generated from existingIMAX theater systems and the demand for new IMAX theater systems.The Company’s success depends in part on general political, social and economic conditions and the willingness of consumers to purchase tickets toIMAX movies. If going to the movies becomes less popular, the Company’s business could be adversely affected. In addition, our operations could beadversely affected if consumers’ discretionary income falls as a result of an economic downturn. 21Table of ContentsIn recent years, the majority of the Company’s revenue has been directly derived from the box-office revenues of its films. Accordingly, any decline inattendance at commercial IMAX theaters could materially and adversely affect several sources of key revenue streams for the Company.The Company also depends on the sale and lease of IMAX theater systems to commercial movie exhibitors to generate revenue. Commercial movieexhibitors generate revenues from consumer attendance at their theaters, which depends on the willingness of consumers to visit movie theaters and spenddiscretionary income at movie theaters. In the event of declining box-office and concession revenues, commercial exhibitors may be less willing to invest capitalin new IMAX theaters.The Company may experience adverse effects due to exchange rate fluctuations.A substantial portion of the Company’s revenues are denominated in U.S. dollars, while a substantial portion of its expenses are denominated inCanadian dollars. The Company also generates revenues in Chinese Yuan Renminbi, Euros and Japanese Yen. While the Company periodically enters intoforward contracts to hedge its exposure to exchange rate fluctuations between the U.S. and the Canadian dollar, the Company may not be successful inreducing its exposure to these fluctuations. The use of derivative contracts is intended to mitigate or reduce transactional level volatility in the results of foreignoperations, but does not completely eliminate volatility.The issuance of the Company’s common shares and the accumulation of shares by certain shareholders could result in the loss of theCompany’s ability to use certain of the Company’s net operating losses.As at December 31, 2013, the Company had approximately $14.8 million of U.S. consolidated federal tax and certain other state tax net operating losscarryforwards. Realization of some or all of the benefit from these U.S. net tax operating losses is dependent on the absence of certain “ownership changes” ofthe Company’s common shares. An “ownership change,” as defined in the applicable federal income tax rules, would place possible limitations, on an annualbasis, on the use of such net operating losses to offset any future taxable income that the Company may generate. Such limitations, in conjunction with the netoperating loss expiration provisions, could significantly reduce or effectively eliminate the Company’s ability to use its U.S. net operating losses to offset anyfuture taxable income.The Company’s revenues from existing customers are derived in part from financial reporting provided by its customers, which may beinaccurate or incomplete, resulting in lost or delayed revenues.The Company’s revenue under its joint revenue sharing arrangements, a portion of the Company’s payments under lease or sales arrangements and itsfilm license fees are based upon financial reporting provided by its customers. If such reporting is inaccurate, incomplete or withheld, the Company’s abilityto receive the appropriate payments in a timely fashion that are due to it may be impaired. The Company’s contractual ability to audit IMAX theaters may notrectify payments lost or delayed as a result of customers not fulfilling their contractual obligations with respect to financial reporting.There is collection risk associated with payments to be received over the terms of the Company’s theater system agreements.The Company is dependent in part on the viability of its exhibitors for collections under long-term leases, sales financing agreements and joint revenuesharing arrangements. Exhibitors or other operators may experience financial difficulties that could cause them to be unable to fulfill their contractual paymentobligations to the Company. As a result, the Company’s future revenues and cash flows could be adversely affected.The Company may not convert all of its backlog into revenue and cash flows.At December 31, 2013, the Company’s sales backlog included 407 theater systems, consisting of 144 systems under sales arrangements and 263 theatersystems under joint revenue sharing arrangements. The Company lists signed contracts for theater systems for which revenue has not been recognized as salesbacklog prior to the time of revenue recognition. The total value of the sales backlog represents all signed theater system sale or lease agreements that areexpected to be recognized as revenue in the future and includes initial fees along with the present value of fixed minimum ongoing fees due over the term, butexcludes contingent fees in excess of fixed minimum ongoing fees that might be received in the future and maintenance and extended warranty fees.Notwithstanding the legal obligation to do so, not all of the Company’s customers with which it has signed contracts may accept delivery of theater systemsthat are included in the Company’s backlog. This could adversely affect the Company’s future revenues and cash flows. In addition, customers with theatersystem obligations in backlog sometimes request that the Company agree to modify or reduce such obligations, which the Company has agreed to in the pastunder certain circumstances. Customer requested delays in the installation of theater systems in backlog remain a recurring and unpredictable part of theCompany’s business. 22Table of ContentsThe Company is dependent on a single supplier, the Eastman Kodak Company, for its analog film.Kodak is the Company’s sole supplier of analog film. Kodak has stated publicly that it intends to continue to own and operate its film productsbusiness, and to date, Kodak has continued to supply the Company with analog film. However, the Company can provide no assurance that Kodak eitherwill continue to supply analog film under terms acceptable to the Company, or that it will continue to manufacture film at all. Furthermore, FujifilmCorporation, which had been another significant supplier of analog film to the movie industry, announced in September 2012 that it would cease productionfor motion pictures beginning in March 2013. Although the Company expects to release only a very small number of analog film prints in 2014, as ofDecember 31, 2013, the Company had 141 film-based theaters in its network, and the Company also uses analog film in its film-based cameras. Without asufficient supply of analog film, the Company may be unable to supply film prints to its film-based theater customers, and it may be unable to utilize itsfilm-based cameras for shooting IMAX films.The Company’s operating results and cash flow can vary substantially from quarter to quarter and could increase the volatility of its shareprice.The Company’s operating results and cash flow can fluctuate substantially from quarter to quarter. In particular, fluctuations in theater systeminstallations and gross box-office performance of IMAX DMR content can materially affect operating results. Factors that have affected the Company’soperating results and cash flow in the past, and are likely to affect its operating results and cash flow in the future, include, among other things: • the timing of signing and installation of new theater systems; • the timing and commercial success of films distributed to the Company’s theater network; • the demand for, and acceptance of, its products and services; • the recognition of revenue of sales and sales-type leases; • the classification of leases as sales-type versus operating leases; • the volume of orders received and that can be filled in the quarter; • the level of its sales backlog; • the signing of film distribution agreements; • the financial performance of IMAX theaters operated by the Company’s customers and by the Company; • financial difficulties faced by customers, particularly customers in the commercial exhibition industry; • the magnitude and timing of spending in relation to the Company’s research and development efforts and related investments as well as newbusiness initiatives; and • the number and timing of joint revenue sharing arrangement installations, related capital expenditures and timing of related cash receipts.Most of the Company’s operating expenses are fixed in the short term. The Company may be unable to rapidly adjust its spending to compensate forany unexpected shortfall in sales, joint revenue sharing arrangements revenue or IMAX DMR revenue which would harm quarterly operating results, althoughthe results of any quarterly period are not necessarily indicative of its results for any other quarter or for a full fiscal year. 23Table of ContentsThe Company’s theater system revenue can vary significantly from its cash flows under theater system sales or lease agreements.The Company’s theater systems revenue can vary significantly from the associated cash flows. The Company often provides financing to customers fortheater systems on a long-term basis through long-term leases or notes receivables. The terms of leases or notes receivable are typically 10 years. TheCompany’s sale and lease-type agreements typically provide for three major sources of cash flow related to theater systems: • initial fees, which are paid in installments generally commencing upon the signing of the agreement until installation of the theater systems; • ongoing fees, which are paid monthly after all theater systems have been installed and are generally equal to the greater of a fixed minimumamount per annum and a percentage of box-office receipts; and • ongoing annual maintenance and extended warranty fees, which are generally payable commencing in the second year of theater operations.Initial fees generally make up the vast majority of cash received under theater system sales or lease agreements for a theater arrangement.For sales and sales-type leases, the revenue recorded is generally equal to the sum of initial fees and the present value of minimum ongoing fees dueunder the agreement. Cash received from initial fees in advance of meeting the revenue recognition criteria for the theater systems is recorded as deferredrevenue. Contingent fees are recognized as they are reported by the theaters after annual minimum fixed fees are exceeded.Leases that do not transfer substantially all of the benefits and risks of ownership to the customer are classified as operating leases. For these leases,initial fees and minimum fixed ongoing fees are recognized as revenue on a straight-line basis over the lease term. Contingent fees are recognized as they arereported by the theaters after annual minimum fixed fees are exceeded.As a result of the above, the revenue set forth in the Company’s financial statements does not necessarily correlate with the Company’s cash flow orcash position. Revenues include the present value of future contracted cash payments and there is no guarantee that the Company will receive such paymentsunder its lease and sale agreements if its customers default on their payment obligations.The Company’s stock price has historically been volatile and declines in market price, including as a result a market downturn, maynegatively affect its ability to raise capital, issue debt, secure customer business and retain employees.The Company is listed on the New York Stock Exchange (“NYSE”) and the Toronto Stock Exchange (“TSX”) and its publicly traded shares have inthe past experienced, and may continue to experience, significant price and volume fluctuations. This market volatility could reduce the market price of itscommon stock, regardless of the Company’s operating performance. A decline in the capital markets generally, or an adjustment in the market price or tradingvolumes of the Company’s publicly traded securities, may negatively affect its ability to raise capital, issue debt, secure customer business or retainemployees. These factors, as well as general economic and geopolitical conditions, may have a material adverse effect on the market price of the Company’spublicly traded securities.The credit agreement governing the Company’s senior secured credit facility contains significant restrictions that limit its operating andfinancial flexibility.The credit agreement governing the Company’s senior secured credit facility contains certain restrictive covenants that, among other things, limit itsability to: • incur additional indebtedness; • pay dividends and make distributions; • repurchase stock; • make certain investments; 24Table of Contents • transfer or sell assets; • create liens; • enter into transactions with affiliates; • issue or sell stock of subsidiaries; • create dividend or other payment restrictions affecting restricted subsidiaries; and • merge, consolidate, amalgamate or sell all or substantially all of its assets to another person.These restrictive covenants impose operating and financial restrictions on the Company that limit the Company’s ability to engage in acts that may be inthe Company’s long-term best interests.The Company is subject to impairment losses on its film assets.The Company amortizes its film assets, including IMAX DMR costs capitalized using the individual film forecast method, whereby the costs of filmassets are amortized and participation costs are accrued for each film in the ratio of revenues earned in the current period to management’s estimate of totalrevenues ultimately expected to be received for that title. Management regularly reviews, and revises when necessary, its estimates of ultimate revenues on atitle-by-title basis, which may result in a change in the rate of amortization of the film assets and write-downs or impairments of film assets. Results ofoperations in future years include the amortization of the Company’s film assets and may be significantly affected by periodic adjustments in amortizationrates.The Company is subject to impairment losses on its inventories.The Company records write-downs for excess and obsolete inventory based upon current estimates of future events and conditions, including theanticipated installation dates for the current backlog of theater system contracts, technological developments, signings in negotiation and anticipated marketacceptance of the Company’s current and pending theater systems. Since the Company introduced a proprietary digitally-based IMAX projection system,increased customer acceptance and preference for the Company’s digital projection system may subject existing film-based inventories to further write-downs(resulting in lower margins) as these theater systems become less desirable in the future.If the Company’s goodwill or long lived assets become impaired the Company may be required to record a significant charge to earnings.Under United States Generally Accepted Accounting Principles (“U.S. GAAP”), the Company reviews its long lived assets for impairment when eventsor changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be qualitatively assessed at least annually and whenevents or changes in circumstances arise or can be quantitatively tested for impairment. Factors that may be considered a change in circumstances include (butare not limited to) a decline in stock price and market capitalization, declines in future cash flows, and slower growth rates in the Company’s industry. TheCompany may be required to record a significant charge to earnings in its financial statements during the period in which any impairment of its goodwill orlong lived assets is determined.Changes in accounting and changes in management’s estimates may affect the Company’s reported earnings and operating income.U.S. GAAP and accompanying accounting pronouncements, implementation guidelines and interpretations for many aspects of the Company’sbusiness, such as revenue recognition, film accounting, accounting for pensions and other postretirement benefits, accounting for income taxes, and treatmentof goodwill or long lived assets, are highly complex and involve many subjective judgments. Changes in these rules, their interpretation, management’sestimates, or changes in the Company’s products or business could significantly change its reported future earnings and operating income and could addsignificant volatility to those measures, without a comparable underlying change in cash flow from operations. See “Critical Accounting Policies” in Item 7. 25Table of ContentsThe Company relies on its key personnel, and the loss of one or more of those personnel could harm its ability to carry out its businessstrategy.The Company’s operations and prospects depend in large part on the performance and continued service of its senior management team. The Companymay not find qualified replacements for any of these individuals if their services are no longer available. The loss of the services of one or more members of theCompany’s senior management team could adversely affect its ability to effectively pursue its business strategy.Because the Company is incorporated in Canada, it may be difficult for plaintiffs to enforce against the Company liabilities based solelyupon U.S. federal securities laws.The Company is incorporated under the federal laws of Canada, some of its directors and officers are residents of Canada and a substantial portion ofits assets and the assets of such directors and officers are located outside the United States. As a result, it may be difficult for U.S. plaintiffs to effect servicewithin the United States upon those directors or officers who are not residents of the United States, or to realize against them or the Company in the UnitedStates upon judgments of courts of the United States predicated upon the civil liability under the U.S. federal securities laws. In addition, it may be difficultfor plaintiffs to bring an original action outside of the United States against the Company to enforce liabilities based solely on U.S. federal securities laws. Item 1B.Unresolved Staff CommentsNone. 26Table of ContentsItem 2.PropertiesThe Company’s principal executive offices are located in Mississauga, Ontario, Canada, New York, New York, and Santa Monica, California. TheCompany’s principal facilities are as follows: Operation Own/Lease Expiration Mississauga, Ontario(1) Headquarters, Administrative, Assembly and Research andDevelopment Own N/A Santa Monica, California Sales, Marketing, Film Production and Post-Production Lease 2015 Beijing, China Sales Lease 2015 New York, New York Executive Lease 2019 Tokyo, Japan Sales, Marketing and Maintenance Lease 2014 Shanghai, China Sales, Marketing, Maintenance and Administrative Lease 2014 Moscow, Russia Sales Lease 2014 London, United Kingdom Sales Lease 2014 (1)This facility is subject to a charge in favor of Wells Fargo Bank in connection with a secured term and revolving credit facility (see note 11 to theaccompanying audited consolidated financial statements in Item 8).The lease on the Company’s current facility in Santa Monica, California is scheduled to expire 2015. During the first quarter of 2014, the Companyanticipates purchasing land and commencing construction of a new Los Angeles-area facility in Playa Vista. The Company anticipates that construction of thenew Playa Vista facility will be completed in 2015. A significant portion of the project is expected to be financed through a construction loan and relatedfacility. 27Table of ContentsItem 3.Legal ProceedingsIn March 2005, the Company, together with Three-Dimensional Media Group, Ltd. (“3DMG”), filed a complaint in the U.S. District Court for theCentral District of California, Western Division, against In-Three, Inc. (“In-Three”) alleging patent infringement. On March 10, 2006, the Company and In-Three entered into a settlement agreement settling the dispute between the Company and In-Three. Despite the settlement reached between the Company and In-Three, co-plaintiff 3DMG refused to dismiss its claims against In-Three. Accordingly, the Company and In-Three moved jointly for a motion to dismiss theCompany’s and In-Three’s claims. On August 24, 2010, the Court dismissed all of the claims pending between the Company and In-Three, thus dismissingthe Company from the litigation.On May 15, 2006, the Company initiated arbitration against 3DMG before the International Centre for Dispute Resolution in New York (the “ICDR”),alleging breaches of the license and consulting agreements between the Company and 3DMG. On June 15, 2006, 3DMG filed an answer denying any breachesand asserting counterclaims that the Company breached the parties’ license agreement. On June 21, 2007, the ICDR unanimously denied 3DMG’s Motion forSummary Judgment filed on April 11, 2007 concerning the Company’s claims and 3DMG’s counterclaims. The proceeding was suspended on May 4, 2009due to failure of 3DMG to pay fees associated with the proceeding. The proceeding was further suspended on October 11, 2010 pending resolution ofreexamination proceedings currently pending involving one of 3DMG’s patents. The Company will continue to pursue its claims vigorously and believes thatall allegations made by 3DMG are without merit. The Company further believes that the amount of loss, if any, suffered in connection with the counterclaimswould not have a material impact on the financial position or results of operations of the Company, although no assurance can be given with respect to theultimate outcome of the arbitration.In January 2004, the Company and IMAX Theatre Services Ltd., a subsidiary of the Company, commenced an arbitration seeking damages before theInternational Court of Arbitration of the International Chambers of Commerce (the “ICC”) with respect to the breach by Electronic Media Limited (“EML”) ofits December 2000 agreement with the Company. In June 2004, the Company commenced a related arbitration before the ICC against EML’s affiliate, E-CityEntertainment (I) PVT Limited (“E-City”), seeking damages as a result of E-City’s breach of a September 2000 lease agreement. An arbitration hearing tookplace in November 2005 against E-City which considered all claims by the Company. On February 1, 2006, the ICC issued an award on liability findingunanimously in the Company’s favor on all claims. Further hearings took place in July 2006 and December 2006. On August 24, 2007, the ICC issued anaward unanimously in favor of the Company in the amount of $9.4 million, consisting of past and future rents owed to the Company under its leaseagreements, plus interest and costs. In the award, the ICC upheld the validity and enforceability of the Company’s theater system contract. The Companythereafter submitted its application to the arbitration panel for interest and costs. On March 27, 2008, the arbitration panel issued a final award in favor of theCompany in the amount of $11.3 million, plus an additional $2,512 each day in interest from October 1, 2007 until the date the award is paid, which theCompany is seeking to enforce and collect in full. In July 2008, E-City commenced a proceeding in Mumbai, India seeking an order that the ICC award maynot be recognized in India. The Company has opposed that application on a number of grounds and seeks to have the ICC award recognized in India. OnJune 24, 2011, the Company commenced an application to the Ontario Superior Court of Justice for recognition of the final award. On December 2, 2011, theOntario court issued an order recognizing the final award and requiring E-City to pay the Company $30,000 to cover the costs of the application. OnJanuary 18, 2012, the Company filed an application in New York State Supreme Court seeking recognition of the Ontario order in New York. On April 11,2012, the New York court issued an order granting the Company’s application leading to an entry of $15.5 million judgment in favor of the Company onMay 4, 2012. On January 30, 2013, the Company filed an action in the New York Supreme Court seeking to collect the amount due under the New Yorkjudgment from certain entities and individuals affiliated with E-City. On June 13, 2013, the Bombay High Court ruled that it has jurisdiction over theproceeding but on November 19, 2013, the Supreme Court of India stayed proceedings in the High Court pending Supreme Court review of the High Court’sruling. The defendants in the New York action have answered and objected to the Company’s petition, and they have moved to dismiss for improper service ofprocess. The New York Court heard oral arguments on August 20, 2013 and has taken the matter under advisement.The Company and certain of its officers and directors were named as defendants in eight purported class action lawsuits filed between August 11, 2006and September 18, 2006, alleging violations of U.S. federal securities laws. These eight actions were filed in the U.S. District Court for the Southern Districtof New York (the “Court”). On January 18, 2007, the Court consolidated all eight class action lawsuits and appointed Westchester Capital Management, Inc.as the lead plaintiff and Abbey Spanier Rodd & Abrams, LLP as lead plaintiff’s counsel. On October 2, 2007, plaintiffs filed a consolidated amended classaction complaint. The amended complaint, brought on behalf of shareholders who purchased the Company’s common stock on the NASDAQ betweenFebruary 27, 2003 and July 20, 2007 (the “U.S. Class”), alleges primarily that the defendants engaged in securities fraud by disseminating materially falseand misleading statements during the class period regarding the Company’s revenue recognition of theater system installations, and failing to disclose materialinformation concerning the Company’s revenue recognition practices. The amended complaint also added PricewaterhouseCoopers LLP, the Company’sauditors, as a defendant. On April 14, 2011, the Court issued an 28Table of Contentsorder appointing The Merger Fund as the lead plaintiff and Abbey Spanier Rodd & Abrams, LLP as lead plaintiff’s counsel. On November 2, 2011, theparties entered into a memorandum of understanding containing the terms and conditions of a settlement of this action. On January 26, 2012, the partiesexecuted and filed with the Court a formal stipulation of settlement and proposed form of notice to the class, which the Court preliminarily approved onFebruary 1, 2012. Under the terms of the settlement, members of the U.S. Class who did not opt out of the settlement will release defendants from liability forall claims that were alleged in this action or could have been alleged in this action or any other proceeding (including the action in Canada as described in (d) ofthis note (the “Canadian Action”) relating to the purchase of IMAX securities on the NASDAQ from February 27, 2003 and July 20, 2007 or the subjectmatter and facts relating to this action. As part of the settlement and in exchange for the release, defendants will pay $12.0 million to a settlement fund whichamount will be funded by the carriers of the Company’s directors and officers insurance policy and by PricewaterhouseCoopers LLP. On March 26, 2012,the parties executed and filed with the Court an amended formal stipulation of settlement and proposed form of notice to the class, which the courtpreliminarily approved on March 28, 2012. On June 20, 2012, the Court issued an order granting final approval of the settlement. The settlement isconditioned on the Company’s receipt of an order from the court in the Canadian Action, the Ontario Superior Court of Justice, (the “Canadian Court”)excluding from the class in the Canadian Action every member of the class in both actions who has not opted out of the U.S. settlement. A hearing on themotion for the order occurred on July 30, 2012 before the Canadian Court and on March 19, 2013, the Canadian Court issued a decision granting theCompany’s motion to exclude from the class in the Canadian Action every member of the classes in both actions who has not opted out of the U.S. settlement.However, no final order will be granted by the Court until the plaintiffs in the Canadian Action have exhausted their appeals.A class action lawsuit was filed on September 20, 2006 in the Canadian Court against the Company and certain of its officers and directors, allegingviolations of Canadian securities laws. This lawsuit was brought on behalf of shareholders who acquired the Company’s securities between February 17,2006 and August 9, 2006. The lawsuit seeks $210.0 million in compensatory and punitive damages, as well as costs. For reasons released December 14,2009, the Canadian Court granted leave to the plaintiffs to amend their statement of claim to plead certain claims pursuant to the Securities Act (Ontario)against the Company and certain individuals and granted certification of the action as a class proceeding. These are procedural decisions, and do not containany conclusions binding on a judge at trial as to the factual or legal merits of the claim. Leave to appeal those decisions was denied. The Company believes theallegations made against it in the statement of claim are meritless and will vigorously defend the matter, although no assurance can be given with respect to theultimate outcome of such proceedings. The Company’s directors’ and officers’ insurance policy provides for reimbursement of costs and expenses incurred inconnection with this lawsuit as well as potential damages awarded, if any, subject to certain policy limits, exclusions and deductibles.On June 26, 2013, the Company filed suit against GDC Technology (USA) LLC and certain of its affiliates (collectively, “GDC”) in the U.S. DistrictCourt for the Central District of California alleging trade secret misappropriation, unjust enrichment and unfair competition and seeking injunctive relief,compensatory damages, and punitive damages. This action is based on GDC’s commercial exploitation of large format digital theater projection system andfilm conversion technologies, which the lawsuit alleges were stolen from the Company by its former employee, Gary Tsui, and then provided by Tsui tovarious technology companies in China. The Company’s action against GDC alleges that GDC is now knowingly and actively using these trade secrets andmarketing large format film projection systems and conversion technology that the Company is informed and believes were derived from and incorporate thetrade secrets stolen by Tsui. On August 12, 2013, in light of the complicating effects of the interwoven corporate relationships among the GDC defendants onfederal diversity jurisdiction, the Company voluntarily dismissed the federal court action and filed a complaint in the Los Angeles County Superior Courtalleging the same set of operative facts and same causes of action that had been contained in the District Court action. GDC has been served with the lawsuit,but has not yet filed its response. The lawsuit is at a very early stage, and the Company cannot predict the timing or outcome of this matter at this time.The Company is also involved in litigation against Gary Tsui (“Tsui”) and related parties in both Canada and China based on Tsui’s theft and useof the Company’s trade secrets. The Company filed a lawsuit against Tsui and other related individuals and entities in the Ontario Superior Court of Justiceon December 8, 2009, through which the Company sought injunctive relief to prohibit Tsui from disclosing or using the Company’s confidential andproprietary information and from competing with the Company. The Company is also seeking compensatory and punitive damages. The Ontario Courtawarded the injunctive relief sought by the Company on December 22, 2009. On April 30, 2013, a warrant was issued for Tsui’s arrest based on his refusal tocomply with the orders of the Ontario court, including with respect to the continued use of the Company’s trade secrets. The Ontario action is to proceed totrial in mid-2014, though all of Tsui’s defenses were stricken by the Ontario court in a January 2012 contempt order. The Company also initiated suits againstTsui and related parties in Beijing No. 1 Intermediate People’s Court in Beijing, China on February 16, 2013 and December 3, 2013, seeking relief similar tothat sought in the Ontario action. The actions in Canada and China remain ongoing.In March 2013, IMAX (Shanghai) Multimedia Technology Co., Ltd. (“IMAX China”), the Company’s wholly-owned subsidiary in China, receivednotice from the Shanghai office of the General Administration of Customs that it had been selected for a customs audit. The Company is unable to assess thepotential impact, if any, of the audit at this time. 29Table of ContentsIn addition to the matters described above, the Company is currently involved in other legal proceedings or governmental inquiries which, in the opinionof the Company’s management, will not materially affect the Company’s financial position or future operating results, although no assurance can be givenwith respect to the ultimate outcome of any such proceedings. Item 4.Mine Safety DisclosuresNot applicable. 30Table of ContentsPART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity SecuritiesThe Company’s common shares are listed for trading under the trading symbol “IMAX” on the NYSE. Prior to February 11, 2011, the Company’scommon shares were listed for trading on the NASDAQ. The common shares are also listed on the TSX under the trading symbol “IMX.” The following tablesets forth the range of high and low sales prices per share for the common shares on NYSE and the TSX. U.S. Dollars High Low NYSE Year ended December 31, 2013 Fourth quarter $30.83 $25.84 Third quarter $30.24 $24.70 Second quarter $28.74 $23.80 First quarter $26.80 $22.67 Year ended December 31, 2012 Fourth quarter $23.20 $20.23 Third quarter $25.34 $19.21 Second quarter $25.03 $19.19 First quarter $26.43 $17.83 Canadian Dollars High Low TSX Year ended December 31, 2013 Fourth quarter $32.47 $26.77 Third quarter $31.05 $25.83 Second quarter $29.43 $24.99 First quarter $27.41 $22.31 Year ended December 31, 2012 Fourth quarter $23.22 $19.76 Third quarter $25.73 $18.89 Second quarter $24.64 $19.94 First quarter $26.15 $18.03 As at January 31, 2014, the Company had approximately 258 registered holders of record of the Company’s common shares.Over the last four years, the Company has not paid, nor does the Company have any current plans to pay, cash dividends on its common shares. Thepayment of dividends by the Company is subject to certain restrictions under the terms of the Company’s indebtedness (see note 11 to the accompanyingaudited consolidated financial statements in Item 8 and “Liquidity and Capital Resources” in Item 7). The payment of any future dividends will be determinedby the Board of Directors in light of conditions then existing, including the Company’s financial condition and requirements, future prospects, restrictions infinancing agreements, business conditions and other factors deemed relevant by the Board of Directors. 31Table of ContentsEquity Compensation PlansThe following table sets forth information regarding the Company’s Equity Compensation Plan as at December 31, 2013: Number of Securities to beIssued Upon Exercise ofOutstanding Options,Warrants and Rights Weighted AverageExercise Price ofOutstanding Options,Warrants and Rights Number of SecuritiesRemaining Available forFuture Issuance UnderEquity Compensation Plans(Excluding SecuritiesReflected in Column (a)) Plan Category (a) (b) (c) Equity compensation plans approved by security holders 6,527,261 $21.31 4,003,462 Equity compensation plans not approved by security holders nil nil nil Total 6,527,261 $21.31 4,003,462 Performance GraphThe following graph compares the total cumulative shareholder return for $100 invested (assumes that all dividends were reinvested) in common sharesof the Company against the cumulative total return of the NYSE Composite Index, the S&P/TSX Composite Index and the Bloomberg Hollywood ReporterIndex on December 31, 2008 to the end of the most recently completed fiscal year. 32Table of ContentsCERTAIN INCOME TAX CONSIDERATIONSUnited States Federal Income Tax ConsiderationsThe following discussion is a general summary of the material U.S. federal income tax consequences of the ownership and disposition of the commonshares by a holder of common shares that is an individual resident of the United States or a United States corporation (a “U.S. Holder”). This discussiondoes not discuss all aspects of U.S. federal income taxation that may be relevant to investors subject to special treatment under U.S. federal income tax law(including, for example, owners of 10.0% or more of the voting shares of the Company).Distributions on Common SharesIn general, distributions (without reduction for Canadian withholding taxes) paid by the Company with respect to the common shares will be taxed to aU.S. Holder as dividend income to the extent that such distributions do not exceed the current and accumulated earnings and profits of the Company (asdetermined for U.S. federal income tax purposes). Subject to certain limitations, under current law dividends paid to non-corporate U.S. Holders may beeligible for a reduced rate of taxation as long as the Company is considered to be a “qualified foreign corporation”. A qualified foreign corporation includes aforeign corporation that is eligible for the benefits of an income tax treaty with the United States. The amount of a distribution that exceeds the earnings andprofits of the Company will be treated first as a non-taxable return of capital to the extent of the U.S. Holder’s tax basis in the common shares and thereafter astaxable capital gain. Corporate holders generally will not be allowed a deduction for dividends received in respect of distributions on common shares. Subjectto the limitations set forth in the U.S. Internal Revenue Code, as modified by the U.S.-Canada Income Tax Treaty, U.S. Holders may elect to claim a foreigntax credit against their U.S. federal income tax liability for Canadian income tax withheld from dividends. Alternatively, U.S. Holders may claim a deductionfor such amounts of Canadian tax withheld.Disposition of Common SharesUpon the sale or other disposition of common shares, a U.S. Holder generally will recognize capital gain or loss equal to the difference between theamount realized on the sale and such holder’s tax basis in the common shares. Gain or loss upon the disposition of the common shares will be long-term if, atthe time of the disposition, the common shares have been held for more than one year. Long-term capital gains of non-corporate U.S. Holders may be eligiblefor a reduced rate of taxation. The deduction of capital losses is subject to limitations for U.S. federal income tax purposes.Canadian Federal Income Tax ConsiderationsThis summary is applicable to a holder or prospective purchaser of common shares who, for the purposes of the Income Tax Act (Canada) and anyapplicable treaty and at all relevant times, is not (and is not deemed to be) resident in Canada, does not (and is not deemed to) use or hold the common sharesin, or in the course of, carrying on a business in Canada, and is not an insurer that carries on an insurance business in Canada and elsewhere.This summary is based on the current provisions of the Income Tax Act (Canada), the regulations thereunder, all specific proposals to amend such Actand regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and the Company’s understanding of theadministrative policies and assessing practices published in writing by the Canada Revenue Agency prior to the date hereof. This summary does not otherwisetake into account any change in law or administrative policy or assessing practice, whether by judicial, governmental, legislative or administrative decision oraction, nor does it take into account other federal or provincial, territorial or foreign tax consequences, which may vary from the Canadian federal income taxconsiderations described herein.This summary is of a general nature only and it is not intended to be, nor should it be construed to be, legal or tax advice to any holder of the commonshares and no representation with respect to Canadian federal income tax consequences to any holder of common shares is made herein. Accordingly,prospective purchasers and holders of the common shares should consult their own tax advisers with respect to their individual circumstances.Dividends on Common SharesCanadian withholding tax at a rate of 25.0% (subject to reduction under the provisions of any applicable tax treaty) will be payable on dividends (oramounts paid or credited on account or in lieu of payment of, or in satisfaction of, dividends) paid or credited to a 33Table of Contentsholder of common shares. Under the Canada - U.S. Income Tax Convention (1980), as amended (the “Canada - U.S. Income Tax Treaty”) the withholding taxrate is generally reduced to 15.0% for a holder entitled to the benefits of the Canada - U.S. Income Tax Treaty who is the beneficial owner of the dividends (or5.0% if the holder is a company that owns at least 10.0% of the common shares).Capital Gains and LossesSubject to the provisions of any relevant tax treaty, capital gains realized by a holder on the disposition or deemed disposition of common shares held ascapital property will not be subject to Canadian tax unless the common shares are taxable Canadian property (as defined in the Income Tax Act (Canada)), inwhich case the capital gains will be subject to Canadian tax at rates which will approximate those payable by a Canadian resident. Common shares generallywill not be taxable Canadian property to a holder provided that, at the time of the disposition or deemed disposition, the common shares are listed on adesignated stock exchange (which currently includes the TSX) unless at any time within the 60 month period immediately preceding such time (a) anycombination of (i) such holder, (ii) persons with whom such holder did not deal at arm’s length or (iii) a partnership in which such holder or any suchpersons holds a membership interest either directly or indirectly through one or more partnerships, owned 25.0% or more of the issued shares of any class orseries of shares of the Company and (b) more than 50% of the fair market value of the common shares was derived directly or indirectly from one or anycombination of (i) real or immovable property situated in Canada, (ii) Canadian resource properties, (iii) timber resource properties, and (iv) options in respectof, or interests in, or for civil law rights in, property described in any of paragraphs (i) to (iii), whether or not the property exists. In certain circumstances setout in the Income Tax Act (Canada), the common shares may be deemed to be taxable Canadian property. Under the Canada-U.S. Income Tax Treaty, a holderentitled to the benefits of the Canada-U.S. Income Tax Treaty and to whom the common shares are taxable Canadian property will not be subject to Canadiantax on the disposition or deemed disposition of the common shares unless at the time of disposition or deemed disposition, the value of the common shares isderived principally from real property situated in Canada. 34Table of ContentsItem 6.Selected Financial DataThe selected financial data set forth below is derived from the consolidated financial information of the Company. The financial information has beenprepared in accordance with U.S. GAAP. All financial information referred to herein is expressed in U.S. dollars unless otherwise noted. Years Ended December 31, (In thousands of U.S. dollars, except per share amounts) 2013 2012(1) 2011(1) 2010(1) 2009(1) Statements of Operations Data: Revenues Equipment and product sales $78,663 $78,161 $85,016 $72,578 $57,304 Services 139,464 135,071 105,262 121,026 78,874 Rentals 61,293 61,268 34,810 46,936 25,758 Finance income 8,142 7,523 6,162 4,789 4,235 Other(2) 375 732 3,848 400 1,862 287,937 282,755 235,098 245,729 168,033 Costs and expenses applicable to revenues Equipment and product sales(3)(4) 37,517 37,538 38,742 36,394 29,040 Services(3)(4) 68,844 70,570 66,972 60,287 46,542 Rentals(4) 16,973 21,402 14,301 11,111 10,093 Other — — 1,018 32 635 123,334 129,510 121,033 107,824 86,310 Gross margin 164,603 153,245 114,065 137,905 81,723 Selling, general and administrative expenses(5)(6) 82,669 81,560 73,157 78,757 56,500 Provision for arbitration award(7) — — 2,055 — — Research and development 14,771 11,411 7,829 6,249 3,755 Amortization of intangibles 1,618 706 465 513 546 Receivable provisions, net of recoveries 445 524 1,570 1,443 1,067 Asset impairments(8) — — 20 — 180 Impairment of available-for-sale investment(9) — 150 — — — Income from continuing operations 65,100 58,894 28,969 50,943 19,675 Interest income 55 85 57 399 98 Interest expense (1,345) (689) (1,827) (1,886) (13,845) Loss on repurchase of Senior Notes due December 2010(10) — — — — (579) Income from continuing operations before income taxes 63,810 58,290 27,199 49,456 5,349 (Provision for) recovery of income taxes(11) (16,629) (15,079) (9,293) 52,574 (274) Loss from equity-accounted investments (2,757) (1,362) (1,791) (493) — Net income from continuing operations 44,424 41,849 16,115 101,537 5,075 Net loss from discontinued operations(1) (309) (512) (855) (297) (347) Net income $44,115 $41,337 $15,260 $101,240 $4,728 Net income per share - basic and diluted: Net income per share - basic: Net income from continuing operations $0.66 $0.64 $0.25 $1.60 $0.10 Net loss from discontinued operations — (0.01) (0.01) (0.01) (0.01) $0.66 $0.63 $0.24 $1.59 $0.09 Net income per share - diluted: Net income from continuing operations $0.64 $0.62 $0.23 $1.52 $0.09 Net loss from discontinued operations — (0.01) (0.01) — — $0.64 $0.61 $0.22 $1.52 $0.09 35Table of Contents (1)In January 2014, the Company discontinued the operations of its owned and operated Nyack IMAX theater. The Company has reclassified the Nyackowned and operated theater operations from continuing operations to discontinued operations. As a result, the respective prior years’ figures have beenreclassified to conform to the current year’s presentation. In 2009, the Company closed its owned and operated Vancouver and Tempe IMAX theaters.The net loss from the operation of these three theaters are reflected as discontinued operations. See note 22 of the accompanying audited consolidatedfinancial statements in Item 8 for more information.(2)The Company enters into theater system arrangements with customers that typically contain customer payment obligations prior to the scheduledinstallation of the theater systems. Each year, during the period of time between signing and theater system installation, certain customers are unable to,or elect not to, proceed with the theater system installation for a number of reasons, including business considerations, or the inability to obtain certainconsents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the customer and/or the Companymay terminate the arrangement by default or by entering into a consensual buyout. In these situations the parties are released from their future obligationsunder the arrangement, and the initial payments that the customer previously made to the Company and recognized as revenue are typically notrefunded. In addition, the Company enters into agreements with customers to terminate their obligations for a theater system configuration and enter intoa new arrangement for a different configuration. Other revenues from settlement arrangements were $0.4 million, $0.7 million, $3.8 million, $0.4million, and $1.9 million in 2013, 2012, 2011, 2010 and 2009, respectively.(3)In 2013, the Company recognized a charge of $0.5 million in costs and expenses applicable to revenues for the write-down of certain service parts andfilm-based inventories. Included for the periods 2009 through 2013 are the following inventory write-downs: 2013 2012 2011 2010 2009 Equipment and product sales $274 $795 $— $827 $48 Services 170 103 — 172 849 $444 $898 $— $999 $897 (4)The Company recorded advertising, marketing, and commission costs for the periods 2009 through 2013 as listed below: 2013 2012 2011 2010 2009 Equipment and product sales $2,522 $2,690 $2,394 $1,925 $2,041 Services 4,552 4,773 5,648 2,793 2,381 Rentals 3,582 3,382 5,432 4,236 3,405 Advertising, marketing, and commission costs $10,656 $10,845 $13,474 $8,954 $7,827 (5)Includes share-based compensation expense of $11.9 million, $13.1 million, $11.7 million, $26.0 million and $17.5 million for 2013, 2012, 2011,2010 and 2009, respectively.(6)In 2013, the Company amended its Canadian postretirement plan to reduce future benefits provided under the plan. As a result of this amendment, theCompany recognized a pre-tax curtailment gain of $2.2 million. See note 21(d) of the accompanying audited consolidated financial statements in Item 8for more information.(7)In 2011, the Company recorded a provision of $2.1 million regarding an award issued in connection with an arbitration proceeding brought against theCompany, relating to agreements entered into in 1994 and 1995 by its former Ridefilm subsidiary, whose business the Company discontinued througha sale to a third party in March 2001. The award was vacated as the parties entered into a confidential settlement agreement in which the parties agreed todismiss any outstanding disputes among them.(8)In 2013, the Company recorded asset impairment charges of $nil. Asset impairment charges related to the impairment of assets of certain theateroperations amounted to $nil, less than $0.1 million, less than $0.1 million and $0.2 million in 2012, 2011, 2010 and 2009, respectively, after theCompany assessed the carrying value of certain assets. 36Table of Contents(9)In 2012, the Company recognized a $0.2 million other-than-temporary impairment of its available-for-sale investment as the value is not expected torecover based on the length of time and extent to which the market value has been less than cost. See note 20(b) of the accompanying auditedconsolidated financial statements in Item 8 for more information.(10)In 2009, the Company repurchased all of its outstanding $160.0 million aggregate principal amount of the Company’s 9.625% Senior Notes. TheCompany paid cash to reacquire its bonds, thereby releasing the Company from further obligations to various holders under the indenture governing theSenior Notes. The Company accounted for the bond repurchase in accordance with the Debt Topic of the FASB ASC whereby the net carrying amountof the debt extinguished was the face value of the bonds adjusted for any unamortized premium, discount and costs of issuance, which resulted in aloss of $0.6 million.(11)The recovery for income taxes in the year ended December 31, 2010 includes a net non-cash income tax benefit of $55.5 million related to a decrease inthe valuation allowance for the Company’s deferred tax assets and other tax adjustments. This release of the valuation allowance was recorded after itwas determined that realization of this deferred income tax benefit is now more likely than not based on current and anticipated future earnings trends.BALANCE SHEET DATA (in thousands of U.S. dollars) As at December 31, 2013 2012 2011 2010 2009 Cash and cash equivalents $29,546 $21,336 $18,138 $30,390 $20,081 Total assets(1) $481,145 $421,872 $407,249 $349,948 $247,546 Total indebtedness $— $11,000 $55,083 $17,500 $50,000 Total shareholders’ equity $319,585 $253,079 $189,868 $155,878 $42,135 (1)Includes the assets of discontinued operations. 37Table of ContentsQUARTERLY STATEMENTS OF OPERATIONS SUPPLEMENTARY DATA (UNAUDITED) (in thousands of U.S. dollars, except per share amounts) 2013 Q1(1) Q2(1) Q3(1) Q4 Revenues $49,666 $81,713 $51,507 $105,051 Costs and expenses applicable to revenues 23,476 38,078 24,055 37,725 Gross margin $26,190 $43,635 $27,452 $67,326 Net income from continuing operations $2,961 $11,855 $1,737 $27,871 Net loss from discontinued operations (100) (39) (128) (42) Net income $2,861 $11,816 $1,609 $27,829 Net income per share - basic $0.04 $0.18 $0.03 $0.41 Net income per share - diluted $0.04 $0.17 $0.03 $0.40 2012 Q1(1) Q2(1) Q3(1) Q4(1) Revenues $55,312 $69,949 $80,079 $77,415 Costs and expenses applicable to revenues 28,318 30,939 35,267 34,986 Gross margin $26,994 $39,010 $44,812 $42,429 Net income from continuing operations $2,642 $11,211 $14,973 $13,023 Net loss from discontinued operations (133) (177) (62) (140) Net income $2,509 $11,034 $14,911 $12,883 Net income per share - basic $0.04 $0.17 $0.23 $0.20 Net income per share - diluted $0.04 $0.16 $0.22 $0.19 (1)In January 2014, the Company discontinued the operations of its owned and operated Nyack IMAX theater. The Company reclassified the Nyackowned and operated theater operations from continuing operations to discontinued operations. As a result, the respective prior period’s figures have beenreclassified to conform to the current period’s presentation. 38Table of ContentsItem 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsGENERALIMAX Corporation, together with its wholly-owned subsidiaries (the “Company”), is one of the world’s leading entertainment technology companies,specializing in motion picture technologies and presentations. The Company refers to all theaters using the IMAX theater system as “IMAX theaters.” IMAXoffers a unique end-to-end cinematic solution combining proprietary software, theater architecture and equipment to create the highest-quality, most immersivemotion picture experience for which the IMAX® brand has become known globally. Top filmmakers and studios utilize IMAX theaters to connect withaudiences in innovative ways, and, as such, IMAX’s network is among the most important and successful theatrical distribution platforms for major eventfilms around the world. As of December 31, 2013 there were 837 IMAX theater systems (701 commercial multiplexes, 19 commercial destinations, 117institutional) operating in 57 countries. This compares to 731 theater systems (598 commercial multiplexes, 19 commercial destinations, 114 institutional)operating in 53 countries as of December 31, 2012.IMAX theater systems combine: • IMAX DMR (Digital Re-Mastering) movie conversion technology, which results in higher image and sound fidelity than conventional cinemaexperiences; • advanced, high-resolution projectors with specialized equipment and automated theater control systems, which generate significantly more contrastand brightness than conventional theater systems; • large screens and proprietary theater geometry, which result in a substantially larger field of view so that the screen extends to the edge of a viewer’speripheral vision and creates more realistic images; • sound system components, which deliver more expansive sound imagery and pinpointed origination of sound to any specific spot in an IMAXtheater; and • specialized theater acoustics, which result in a four-fold reduction in background noise.The components together cause audiences in IMAX theaters to feel as if they are a part of the on-screen action, creating a more intense, immersive andexciting experience than in a traditional theater.As a result of the immersiveness and superior image and sound quality of The IMAX Experience, the Company’s exhibitor customers typically chargea premium for IMAX DMR films over films exhibited in their other auditoriums. The premium pricing, combined with the higher attendance levels associatedwith IMAX DMR films, generates incremental box-office for the Company’s exhibitor customers and for the movie studios releasing their films to the IMAXnetwork. The incremental box-office generated by IMAX DMR films has helped establish IMAX as a key premium distribution and marketing platform forHollywood blockbuster films. Driven by the advent of digital technology that reduced the IMAX DMR conversion time and with the strengthening of theCompany’s relationships with the major studios, the number of IMAX DMR films released to the theater network per year has increased to 38 films in 2013,up from 35 films in 2012 and 6 films in 2007. The Company expects to release a similar number of IMAX DMR films in 2014 as compared to 2013.As one of the world’s leaders in entertainment technology, the Company strives to remain at the forefront of advancements in cinema technology.Accordingly, one of the Company’s key short-term initiatives is the development of a next-generation laser-based digital projection system, which it plans tobegin rolling out by the end of 2014. In order to develop the laser-based digital projection system, the Company obtained exclusive rights to certain laserprojection technology and other technology with applicability in the digital cinema field from Eastman Kodak Company (“Kodak”) in 2011 and entered a co-development arrangement with Barco N.V. (“Barco”) to co-develop a laser-based digital projection system that incorporates Kodak technology in 2012. TheCompany believes that these arrangements with Kodak and Barco will enable IMAX laser projectors to present greater brightness and clarity, a wider colorgamut and deeper blacks, and consume less power and last longer than existing digital technology. The Company also believes that a laser projection solutionwill be the first IMAX digital projection system capable of illuminating the largest screens in its network.The Company is undertaking new lines of business, particularly in the area of in-home theater entertainment. In 2013, the Company announced twonew initiatives in the area of in-home entertainment, including a joint venture with TCL Multimedia Technology Holding Limited (“TCL”) to design, develop,manufacture and sell a premium home theater system and an investment in PRIMA Cinema Inc., a maker of proprietary system that transmit currenttheatrical releases for home viewing. The Company and TCL expect to launch the new home theater system, which will incorporate componentsof IMAX’s projection and sound technology adapted for a broader home environment as well as PRIMA technology, in China and other select global marketsin 2015. The Company also recently began marketing and selling the IMAX Private Theatre, a cinema-grade, ultra-premium home theater system. 39Table of ContentsImportant factors that the Company’s Chief Executive Officer (“CEO”) Richard L. Gelfond uses in assessing the Company’s business and prospectsinclude: • the signing, installation and financial performance of theater system arrangements (particularly its joint revenue sharing arrangements); • film performance and the securing of new film projects (particularly IMAX DMR films); • revenue and gross margins from the Company’s operating segments; • operating leverage; • earnings from operations as adjusted for unusual items that the Company views as non-recurring; • short- and long-term cash flow projections; • the continuing ability to invest in and improve the Company’s technology to enhance its differentiation of presentation versus other cinematicexperiences; and • the overall execution, reliability and consumer acceptance of The IMAX Experience, related technologies and new initiatives.The primary revenue sources for the Company can be categorized into two main groups: theater systems and films. On the theater systems side, theCompany derives revenues from theater exhibitors primarily through either a sale or sales-type lease arrangement or a joint revenue sharing arrangement.Theater exhibitors also pay for associated maintenance and extended warranty services. The Company also derives a small portion of other revenues from theoperation of its own theaters, the provision of aftermarket parts for its system components, and camera rentals. Film revenue is derived primarily from filmstudios for the provision of film production and digital re-mastering services for exhibition on IMAX theater systems around the world. The Company derivesother film revenues from the distribution of certain films and the provision of post-production services.IMAX Theater Systems: IMAX Systems (Sales and Sales-type Leases), Joint Revenue Sharing Arrangements and Theater SystemMaintenanceOne of the Company’s principal businesses is the design, manufacture and delivery of premium theater systems (“IMAX theater systems”). The theatersystem equipment components (including the projection system, sound system, screen system and, if applicable, 3D glasses cleaning machine), theater designsupport, supervision of installation, projectionist training and the use of the IMAX brand are all elements of what the Company considers the systemdeliverable (the “System Deliverable”). The IMAX theater systems are based on proprietary and patented technology developed over the course of theCompany’s 46-year history. The Company’s customers who purchase, lease or otherwise acquire the IMAX theater systems through joint revenue sharingarrangements are theater exhibitors that operate commercial theaters (particularly multiplexes), museums, science centers, or destination entertainment sites.The Company generally does not own IMAX theaters, but licenses the use of its trademarks along with the sale, lease or contribution of the IMAX theatersystem.IMAX SystemsThe Company provides IMAX theater systems to customers on a sales or long-term lease basis, typically with an initial 10-year term. These agreementstypically comprise of initial fees and ongoing fees (which can include a fixed minimum amount per annum and contingent fees in excess of the minimumpayments), as well as maintenance and extended warranty fees. The initial fees vary depending on the system configuration and location of the theater and arepaid to the Company in installments between the time of system signing and the time of system installation, which is when the total of these fees, in addition tothe present value of future annual minimum payments, are recognized as revenue. Ongoing fees are paid over the term of the contract, commencing after thetheater system has been installed and are equal to the greater of a fixed minimum amount per annum or a percentage of box-office receipts. Contingentpayments in excess of fixed minimum ongoing payments are recognized as revenue when reported by theater operators, provided collectibility is reasonablyassured. Typically, ongoing fees are indexed to a local consumer price index. Finance income is derived over the term of a financed sale or sales-type leasearrangement as the unearned income on that financed sale or sales-type lease is earned.Under a sales agreement, title to the theater system equipment components passes to the customer. In certain instances, however, the Company retainstitle or a security interest in the equipment until the customer has made all payments required under the agreement. Under the terms of a sales-type leaseagreement, title to the theater system equipment components remains with the Company. The Company has the right to remove the equipment for non-paymentor other defaults by the customer. 40Table of ContentsThe revenue earned from customers under the Company’s theater system sales or lease agreements varies from quarter to quarter and year to year basedon a number of factors, including the number and mix of theater system configurations sold or leased, the timing of installation of the theater systems, thenature of the arrangement and other factors specific to individual contracts.Joint Revenue Sharing ArrangementsThe Company also provides IMAX theater systems to customers under joint revenue sharing arrangements. Under these arrangements the Companyprovides the IMAX theater system in return for a portion of the customer’s IMAX box-office receipts and, in some cases, concession revenues and/or a smallupfront or initial payment. Pursuant to these revenue-sharing arrangements, the Company retains title to the theater system equipment components and theapplicable rent payments, rather than being fixed or determinable, are contingent on film performance. The initial term of IMAX theater systems under jointrevenue sharing arrangements are typically non-cancellable for 10 to 13 years and are renewable by the customer for one or more additional terms of between 5and 10 years. The Company has the right to remove the equipment for non-payment or other defaults by the customer. The contracts are non-cancellable by thecustomer unless the Company fails to perform its obligations.The introduction of joint revenue sharing arrangements has been an important factor in the expansion of the Company’s commercial theater network,which has grown by approximately 302% since the beginning of 2008. Joint revenue sharing arrangements allow commercial theater exhibitors to install IMAXtheater systems without the significant initial capital investment required in a sale or sales-type lease arrangement. Joint revenue sharing arrangements driverecurring cash flows and earnings for the Company, as customers under joint revenue sharing arrangements pay the Company a portion of their ongoing box-office. The Company funds its joint revenue sharing arrangements through cash flows from operations and the Company’s credit facility. As atDecember 31, 2013, the Company had 382 theaters in operation under joint revenue sharing arrangements, a 20.9% increase as compared to the 316 jointrevenue sharing arrangements open as at December 31, 2012. The Company also had contracts in backlog for an additional 263 theaters under joint revenuesharing arrangements as at December 31, 2013.The revenue earned from customers under the Company’s joint revenue sharing arrangements can vary from quarter to quarter and year to year based ona number of factors including film performance, the mix of theater system configurations, the timing of installation of these theater systems, the nature of thearrangement, the location, size and management of the theater and other factors specific to individual arrangements. Ongoing revenue from theater systemsunder joint revenue sharing arrangements is derived from box-office results and concession revenues reported by the theater operator, provided collectibility isreasonably assured.Theater System MaintenanceFor all IMAX theaters, theater owners or operators are also responsible for paying the Company an annual maintenance and extended warranty fee.Under these arrangements, the Company provides proactive and reactive maintenance services to every theater in its network to ensure that each presentation isup to the highest IMAX quality standard. Annual maintenance fees are paid throughout the duration of the term of the theater agreements and are typicallyindexed to a local consumer price index.Other Theater RevenuesThe Company derives a small portion of its revenues from other sources. As at December 31, 2013 and 2012, the Company had four owned andoperated theaters. However, on January 30, 2014, the Company discontinued the operations of one of these owned and operated theaters in Nyack, New York.In addition, the Company has a commercial arrangement with one theater resulting in the sharing of profits and losses and provides management services totwo theaters. The Company also rents its proprietary 2D and 3D large-format film and digital cameras to third party production companies. The Companymaintains cameras and other film equipment and also offers production advice and technical assistance to both documentary and Hollywood filmmakers.Additionally, the Company generates revenues from the sale of after-market parts and 3D glasses.Revenue from theater system arrangements is recognized at a different time from when cash is collected. See “Critical Accounting Policies” below forfurther discussion on the Company’s revenue recognition policies. 41Table of ContentsIMAX Theater NetworkThe following table outlines the breakdown of the theater network by type and geographic location as at December 31: 2013 Theater Network Base 2012 Theater Network Base CommercialMultiplex CommercialDestination Institutional Total CommercialMultiplex CommercialDestination Institutional Total United States 319 6 55 380 290 6 57 353 Canada 34 2 8 44 34 2 7 43 Greater China(1) 150 — 23 173 108 — 20 128 Asia (excluding Greater China) 61 3 7 71 52 3 7 62 Western Europe 49 7 11 67 42 7 11 60 Russia & the CIS 40 — — 40 32 — — 32 Latin America(2) 25 — 11 36 19 — 10 29 Rest of the World 23 1 2 26 21 1 2 24 Total 701 19 117 837 598 19 114 731 (1)Greater China includes China, Hong Kong, Taiwan and Macau.(2)Latin America includes South America, Central America and Mexico.As of December 31, 2013, 50.7% of IMAX systems in operation were located in the United States and Canada compared to 54.2% as at the end of lastyear. The commercial exhibitor market in the United States and Canada represents an important customer base for the Company in terms of both collectionsunder existing arrangements and potential future theater system contracts. The Company has targeted these operators for the sale or sales-type lease of itsIMAX digital projection system, as well as for joint revenue sharing arrangements. While the Company is pleased with its progress in the U.S. and Canadianexhibitor markets, there is no assurance that the Company’s progress in these markets will continue, particularly as a higher percentage of these markets arepenetrated. To minimize the Company’s credit risk in this area, the Company retains title to the underlying theater systems leased, performs initial andongoing credit evaluations of its customers and makes ongoing provisions for its estimates of potentially uncollectible amounts.The Company believes that over time its commercial multiplex theater network could grow to approximately 1,700 IMAX theaters worldwide from 701commercial multiplex IMAX theaters operating as of December 31, 2013. While the Company continues to grow in the United States and Canada, it believesthat the majority of its future growth will come from international markets. As at December 31, 2013, 49.3% of IMAX theater systems in operation werelocated within international markets (defined as all countries other than the United States and Canada), up from 45.8% as at December 31, 2012. In fact,2013 marked the first year in the Company’s history that revenues and gross box-office derived from outside the United States and Canada exceeded revenuesand gross box-office from the United States and Canada. Risks associated with the Company’s international business are described in Risk Factors – “TheCompany conducts business internationally, which exposes it to uncertainties and risks that could negatively affect its operations, sales and future growthprospects” in Item 1A of the Company’s 2013 Form 10-K.Greater China continues to be the Company’s second-largest and fastest-growing market. As at December 31, 2013, the Company had 173 theatersoperating in Greater China with an additional 239 theaters (includes 2 upgrades) in backlog, representing 58.7% of the Company’s current backlog, that arescheduled to be installed in Greater China by 2021. The Company continues to invest in joint revenue sharing arrangements with select partners to ensureongoing revenue in this key market. In 2013, the Company and Wanda Cinema Line Corporation (“Wanda”) announced amendments of the parties’ original2011 joint revenue sharing arrangement for an additional 120 IMAX theaters to be located throughout China. The most recent expansion brings Wanda’s totalcommitment to 210 IMAX theater systems, of which 195 are under the parties’ joint revenue sharing arrangement. The Company believes that the Chinamarket presents opportunities for additional growth with favorable market trends, including government initiatives to foster cinema screen growth, to supportthe film industry and to increase the number of Hollywood films distributed in China, including a 2012 agreement with the U.S. to permit 14 additionalIMAX or 3D format films to be distributed in China each year and to permit distributors to receive higher distribution fees. The Company cautions, however,that its expansion in China faces a number of challenges. See Risk Factors – “The Company faces risks in connection with the continued expansion of itsbusiness in China” in Item 1A of the Company’s 2013 Form 10-K. In 2011, the Company formed IMAX (Shanghai) Multimedia Technology Co., Ltd(“IMAX China”) to facilitate the Company’s expansion in China. December 31, 2013, IMAX China had offices in Shanghai and Beijing and total of 57employees. 42Table of ContentsThe following table outlines the breakdown of the Commercial Multiplex theater network by arrangement type and geographic location as atDecember 31: 2013 2012 IMAX Commercial Multiplex Theater Network IMAX Commercial Multiplex Theater Network JRSA Sale / Sales-type lease Total JRSA Sale / Sales-type lease Total Domestic Total (United States & Canada) 237 116 353 212 112 324 International: Greater China 85 65 150 54 54 108 Asia (excluding Greater China) 30 31 61 26 20 46 Western Europe 29 20 49 24 18 42 Russia & the CIS — 40 40 — 32 32 Latin America — 25 25 — 19 19 Rest of the World 1 22 23 — 27 27 International Total 145 203 348 104 170 274 Worldwide Total 382 319 701 316 282 598 As at December 31, 2013, 237 (2012 — 212) of the 382 (2012 — 316) theaters under joint revenue sharing arrangements in operation, or 62.0%(2012 — 67.1%) were located in the United States and Canada, with the remaining 145 (2012 — 104) or 38.0% of arrangements being located in internationalmarkets. The Company continues to seek to expand its network of theaters under joint revenue sharing arrangements, particularly in select internationalmarkets.Sales BacklogThe Company’s current sales backlog is as follows: December 31, 2013 December 31, 2012 Number ofSystems Dollar Value(in thousands) Number ofSystems Dollar Value(in thousands) Sales and sale-type lease arrangements 144 $177,956 139 $168,101 Joint revenue sharing arrangements 263 51,983 137 31,652 407(1) $229,939 276(2) $199,753 (1)Includes 23 upgrades to a digital theater system, in an existing IMAX theater location (3 xenon and 20 laser, of which 4 are under joint revenue sharingarrangements).(2)Includes 11 upgrades to a digital theater system, in an existing IMAX theater location (6 xenon and 5 laser).The number of theater systems in the backlog reflects the minimum number of commitments from signed contracts. The dollar value fluctuatesdepending on the number of new theater system arrangements signed from quarter to quarter, which adds to backlog, and its installation and acceptance oftheater systems and the settlement of contracts, both of which reduce backlog. Sales backlog typically represents the fixed contracted revenue under signedtheater system sale and lease agreements that the Company believes will be recognized as revenue upon installation and acceptance of the associated theater.Sales backlog includes initial fees along with the estimated present value of contractual ongoing fees due over the lease term; however, it excludes amountsallocated to maintenance and extended warranty revenues as well as fees in excess of contractual ongoing fees that may be received in the future. The value ofsales backlog does not include revenue from theaters in which the Company has an equity interest, operating leases, letters of intent or long-term conditionaltheater commitments. The value of theaters under joint revenue sharing arrangements is excluded from the dollar value of sales backlog, although certaintheater systems under joint revenue sharing arrangements provide for contracted upfront payments and therefore carry a backlog value based on thosepayments. The Company believes that the contractual obligations for theater system installations that are listed in sales backlog are valid and bindingcommitments. 43Table of ContentsFrom time to time, in the normal course of its business, the Company will have customers who are unable to proceed with a theater system installationfor a number of reasons, including the inability to obtain certain consents, approvals or financing. Once the determination is made that the customer will notproceed with installation, the agreement with the customer is terminated or amended. If the agreement is terminated, once the Company and the customer arereleased from all their future obligations under the agreement, all or a portion of the initial rents or fees that the customer previously made to the Company arerecognized as revenue.The following table outlines the breakdown of the total backlog by arrangement type and geographic location as at December 31: 2013 2012 JRSA Sale / Lease Total JRSA Sale / Lease Total Domestic Total (United States & Canada) 33 22 55 39 16 55 International: Greater China 200 39 239 80 42 122 Asia (excluding Greater China) 17 22 39 14 19 33 Western Europe 10 3 13 4 1 5 Russia & the CIS — 19 19 — 23 23 Latin America — 32 32 — 35 35 Rest of the World 3 7 10 — 3 3 International Total 230 122 352 98 123 221 Worldwide Total 263 144 407(1) 137 139 276(2) (1)Includes 23 upgrades to a digital theater system, in an existing IMAX theater location (3 xenon and 20 laser, of which 4 are under joint revenue sharingarrangements).(2)Includes 11 upgrades to a digital theater system, in an existing IMAX theater location (6 xenon and 5 laser).Approximately 86.5% of IMAX theater system arrangements in backlog as at December 31, 2013 are scheduled to be installed in international markets(2012 – 80.1%). 44Table of ContentsThe following reflects the Company’s signings and installations for the years ended December 31: Years Ended December 31, 2013 2012 Theater System Signings: Full new sales and sale-type lease arrangements 56 43 New joint revenue sharing arrangements 190 78 Total new theaters 246 121 Upgrades of IMAX theater systems 31(1) 21(2) Total theater signings 277 142 Years Ended December 31, 2013 2012 Theater System Installations: Full new sales and sale-type lease arrangements 47(3) 47 New joint revenue sharing arrangements 65 60 Total new theaters 112(3) 107 Upgrades of IMAX theater systems 21(1) 18 Total theater installations 133 125 (1)Includes upgrades to xenon-based digital systems under short-term operating lease arrangements (10 signings, 10 installations).(2)Includes 3 IMAX theaters acquired from another existing customer that had been operating under a joint revenue sharing arrangement. These theaterswere purchased from the Company under a sales arrangement.(3)Includes the following items: (i) one new xenon-based digital system under a short-term operating lease arrangement; (ii) one theater system which hasincreased the Company’s institutional theater network; and (iii) one IMAX Private Theater (the first of its kind in the IMAX theater network).The Company estimates that it will install a similar number of new theater systems (excluding digital upgrades) as the Company installed in 2013. TheCompany’s installation estimates includes scheduled systems from backlog, as well as the Company’s estimate of installations from arrangements that willsign and install in the same calendar year. The Company cautions, however, that theater system installations may slip from period to period over the course ofthe Company’s business, usually for reasons beyond its control.Films: Digital Re-Mastering (IMAX DMR) and other film revenueDigital Re-Mastering (IMAX DMR)In 2002, the Company developed a proprietary technology to digitally re-master Hollywood films into IMAX digital cinema package format or 15/70-format film for exhibition in IMAX theaters at a modest cost that is incurred by the Company. This system, known as IMAX DMR, digitally enhances theimage resolution of motion picture films for projection on IMAX screens while maintaining or enhancing the visual clarity and sound quality to levels forwhich The IMAX Experience is known. This technology enabled the IMAX theater network to release Hollywood films simultaneously with their broaderdomestic release. The development of this technology was critical in helping the Company execute its strategy of expanding its commercial theater network byestablishing IMAX theaters as a key, premium distribution platform for Hollywood films. In a typical IMAX DMR film arrangement, the Company receives apercentage of net box-office receipts of any commercial films released in the IMAX network, which range from 10-15%, from a film studio for the conversionof the film to the IMAX DMR format and access to its premium distribution platform.IMAX films benefit from enhancements made by individual filmmakers exclusively for the IMAX release, and filmmakers and studios haveincreasingly sought IMAX-specific enhancements to generate interest in and excitement for their films. Such enhancements include shooting selected sceneswith IMAX cameras to increase the audience’s immersion in the film and taking 45Table of Contentsadvantage of the unique dimensions of the IMAX screen by shooting the film in a larger aspect ratio and early release windows exclusively in IMAX. Severalrecent films have featured select sequences shot with IMAX cameras including Star Trek Into Darkness: An IMAX 3D Experience, released in May 2013and The Hunger Games: Catching Fire: The IMAX Experience in November 2013, as well as, The Dark Knight Rises: The IMAX Experience in July2012, which featured over an hour of footage shot with IMAX cameras. In addition, several recent movies, including Oblivion: The IMAX Experience in2013 and Skyfall: The IMAX Experience in 2012 have featured footage taking advantage of the larger projected IMAX aspect ratio.The original soundtrack of a film to be released to the IMAX network is re-mastered for the IMAX five or six-channel digital sound systems for theIMAX DMR release. Unlike the soundtracks played in conventional theaters, IMAX re-mastered soundtracks are uncompressed and full fidelity. IMAXsound systems use proprietary loudspeaker systems and proprietary surround sound configurations that ensure every theater seat is in a good listeningposition.The Company believes that its international expansion is an important driver of future growth for the Company. In fact, during 2013, 54.0% of theCompany’s gross box-office from IMAX DMR films was generated in international markets, as compared to 49.3% in 2012. To support growth ininternational markets, the Company has sought to bolster its international film strategy, supplementing the Company’s film slate of Hollywood DMR titleswith appealing local IMAX DMR releases in select markets. During 2013, the Company released nine local language IMAX DMR films, including five inChina and one in each of Japan, Russia, France, and India. In 2012, five local-language IMAX DMR films were released, including four in China and one inFrance. The Company expects to announce additional local language IMAX DMR films to be released to the IMAX network in 2014 and beyond.To date, the Company has announced the following 14 DMR films to be released in 2014 to the IMAX theater network: • Jack Ryan: Shadow Recruit: The IMAX Experience (Paramount Pictures, January 2014); • I, Frankenstein: An IMAX 3D Experience (Lionsgate, January 2014); • The Monkey King: The IMAX Experience (Global Star Productions, January 2014, China only); • Robocop: The IMAX Experience (Metro-Goldwyn-Mayer Studios, Inc., February 2014); • 300: Rise of an Empire: An IMAX 3D Experience (Warner Bros. Pictures, March 2014); • Divergent: The IMAX Experience (Summit Entertainment, March 2014); • Noah: The IMAX Experience (Paramount Pictures, March 2014); • Captain America: The Winter Soldier: An IMAX 3D Experience (Marvel Entertainment, April 2014); • The Amazing Spider-Man 2: An IMAX 3D Experience (Sony Pictures, May 2014); • Godzilla: The IMAX Experience (Warner Bros. Pictures, May 2014); • Edge of Tomorrow: The IMAX Experience (Warner Bros. Pictures, June 2014); • Transformers: Age of Extinction: An IMAX 3D Experience (Paramount Pictures, June 2014); • Interstellar: The IMAX Experience (Paramount Pictures and Warner Bros. Pictures, November 2014); and • The Hobbit: There and Back Again: An IMAX 3D Experience (Warner Bros. Pictures, December 2014).The Company remains in active negotiations with all of the major Hollywood studios for additional films to fill out its short and long-term film slate,and anticipates that a similar number of IMAX DMR films will be released to the IMAX network in 2014 as were released in 2013.In addition, in conjunction with Warner Bros. Pictures, the Company will release an IMAX original production, Island of Lemurs: Madagascar, onApril 4, 2014.Other Film Revenues: Film Distribution and Post-ProductionThe Company is also a distributor of large-format films, primarily for its institutional theater partners. The Company generally distributes films whichit produces or for which it has acquired distribution rights from independent producers. The Company receives either a percentage of the theater box-officereceipts or a fixed amount as a distribution fee.Films produced by the Company are typically financed through third parties, whereby the Company will generally receive a film production fee inexchange for producing the film and a distribution fee for distributing the film. The ownership rights to such films may be held by the film sponsors, the filminvestors and/or the Company. The Company utilizes third-party funding for the majority of original films it produces and distributes. In 2012, theCompany, along with WB and MFF released an original title, To the Artic 3D. In 2011, the Company, along with WB, released Born to be Wild 3D. In 46Table of ContentsJanuary 2013, the Company announced an agreement with MFF to jointly finance, market and distribute up to four films (with an option for four additionalfilms) produced by MFF to be released exclusively to IMAX theaters. The agreement will ensure IMAX’s institutional theater partners access to a steady flowof the highest-quality, large-format documentaries over the years to come. One of the four films produced under the MFF agreement, Journey to the SouthPacific had a limited release in November 2013. A broader release of Journey to the South Pacific is scheduled in 2014.IMAX Post/DKP Inc. (formerly David Keighley Productions 70MM Inc.), a wholly-owned subsidiary of the Company, provides film post-productionand quality control services for large-format films (whether produced internally or externally), and digital post-production services.CRITICAL ACCOUNTING POLICIES AND ESTIMATESThe Company prepares its consolidated financial statements in accordance with United States Generally Accepted Accounting Principles (“U.S.GAAP”).The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses. On an ongoing basis, management evaluates its estimates, including those related to selling prices associated with theindividual elements in multiple element arrangements; residual values of leased theater systems; economic lives of leased assets; allowances for potentialuncollectibility of accounts receivable, financing receivables and net investment in leases; write-downs for inventory obsolescence; ultimate revenues for filmassets; impairment provisions for film assets, long-lived assets and goodwill; depreciable lives of property, plant and equipment; useful lives of intangibleassets; pension plan and post retirement assumptions; accruals for contingencies including tax contingencies; valuation allowances for deferred income taxassets; and, estimates of the fair value and expected exercise dates of stock-based payment awards. Management bases its estimates on historical experience,future expectations and other assumptions that are believed to be reasonable at the date of the consolidated financial statements. Actual results may differ fromthese estimates due to uncertainty involved in measuring, at a specific point in time, events which are continuous in nature, and differences may be material.The Company’s significant accounting policies are discussed in note 2 to its audited consolidated financial statements in Item 8 of the Company’s 2013Form 10-K.The Company considers the following significant estimates, assumptions and judgments to have the most significant effect on its results:Revenue RecognitionThe Company generates revenue from various sources as follows: • design, manufacture, sale and lease of proprietary theater systems for IMAX theaters principally owned and operated by commercial andinstitutional customers located in 57 countries as at December 31, 2013; • production, digital re-mastering, post-production and/or distribution of certain films shown throughout the IMAX theater network; • operation of certain IMAX theaters primarily in the United States; • provision of other services to the IMAX theater network, including ongoing maintenance and extended warranty services for IMAX theatersystems; and • other activities, which includes short-term rental of cameras and aftermarket sales of projector system components.Multiple Element ArrangementsThe Company’s revenue arrangements with certain customers may involve multiple elements consisting of a theater system (projector, sound system,screen system and, if applicable, 3D glasses cleaning machine); services associated with the theater system including theater design support, supervision ofinstallation, and projectionist training; a license to use of the IMAX brand; 3D glasses; maintenance and extended warranty services; and licensing of films.The Company evaluates all elements in an arrangement to determine what are considered typical deliverables for accounting purposes and which of thedeliverables represent separate units of accounting based on the applicable accounting guidance in the Leases Topic of the Financial Accounting StandardsBoard (“FASB”) Accounting Standards Codification (“ASC” or “Codification”); the Guarantees Topic of the FASB ASC; the Entertainment – Films 47Table of ContentsTopic of the FASB ASC; and the Revenue Recognition Topic of the FASB ASC. If separate units of accounting are either required under the relevantaccounting standards or determined to be applicable under the Revenue Recognition Topic, the total consideration received or receivable in the arrangement isallocated based on the applicable guidance in the above noted standards.Theater SystemsThe Company has identified the projection system, sound system, screen system and, if applicable, 3D glasses cleaning machine, theater designsupport, supervision of installation, projectionist training and the use of the IMAX brand to be a single deliverable and a single unit of accounting (“theSystem Deliverable”). When an arrangement does not include all the elements of a System Deliverable, the elements of the System Deliverable included in thearrangement are considered by the Company to be a single deliverable and a single unit of accounting. The Company is not responsible for the physicalinstallation of the equipment in the customer’s facility; however, the Company supervises the installation by the customer. The customer has the right to usethe IMAX brand from the date the Company and the customer enter into an arrangement.The Company’s System Deliverable arrangements involve either a lease or a sale of the theater system. Consideration in the Company’s arrangementsthat are not joint revenue sharing arrangements, consists of upfront or initial payments made before and after the final installation of the theater systemequipment and ongoing payments throughout the term of the lease or over a period of time, as specified in the arrangement. The ongoing payments are thegreater of an annual fixed minimum amount or a certain percentage of the theater box-office. Amounts received in excess of the annual fixed minimum amountsare considered contingent payments. The Company’s arrangements are non-cancellable, unless the Company fails to perform its obligations. In the absence ofa material default by the Company, there is no right to any remedy for the customer under the Company’s arrangements. If a material default by the Companyexists, the customer has the right to terminate the arrangement and seek a refund only if the customer provides notice to the Company of a material default andonly if the Company does not cure the default within a specified period.For arrangements entered into or materially modified after January 1, 2011, consideration is allocated to each unit of accounting based on the unit’srelative selling prices. The Company uses vender-specific objective evidence of selling price (VSOE) when the Company sells the deliverable separately and isthe price actually charged by the Company for that deliverable. VSOE is established for the Company’s System Deliverable, maintenance and extendedwarranty services and film license arrangements. The Company uses a best estimate of selling price (BESP) for units of accounting that do not have VSOE orthird party evidence of selling price. The Company determines BESP for a deliverable by considering multiple factors including the Company’s historicalpricing practices, product class, market competition and geography.Sales ArrangementsFor arrangements qualifying as sales, the revenue allocated to the System Deliverable is recognized in accordance with the Revenue Recognition Topic ofthe FASB ASC, when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in fullworking condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist training has been completed, and (iv) the earlier of(a) receipt of written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionisttraining or (b) public opening of the theater, provided there is persuasive evidence of an arrangement, the price is fixed or determinable and collectibility isreasonably assured.The initial revenue recognized consists of the initial payments received and the present value of any future initial payments and fixed minimum ongoingpayments that have been attributed to this unit of accounting. Contingent payments in excess of the fixed minimum ongoing payments are recognized whenreported by theater operators, provided collectibility is reasonably assured.The Company has also agreed, on occasion, to sell equipment under lease or at the end of a lease term. Consideration agreed to for these lease buyouts isincluded in revenues from equipment and product sales, when persuasive evidence of an arrangement exists, the fees are fixed or determinable, collectibility isreasonably assured and title to the theater system passes from the Company to the customer.Lease ArrangementsThe Company uses the Leases Topic of the FASB ASC to evaluate whether an arrangement is a lease and the classification of the lease. Arrangementsnot within the scope of the accounting standard are accounted for either as a sales or services arrangement, as applicable.For lease arrangements, the Company determines the classification of the lease in accordance with the Leases Topic of the FASB ASC. A leasearrangement that transfers substantially all of the benefits and risks incident to ownership of the equipment is classified 48Table of Contentsas a sales-type lease based on the criteria established in the accounting standard; otherwise the lease is classified as an operating lease. Prior to commencementof the lease term for the equipment, the Company may modify certain payment terms or make concessions. If these circumstances occur, the Companyreassesses the classification of the lease based on the modified terms and conditions.For sales-type leases, the revenue allocated to the System Deliverable is recognized when the lease term commences, which the Company deems to bewhen all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition,(ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist training has been completed, and (iv) the earlier of (a) receipt of thewritten customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or(b) public opening of the theater, provided collectibility is reasonably assured.The initial revenue recognized for sales-type leases consists of the initial payments received and the present value of future initial payments and fixedminimum ongoing payments computed at the interest rate implicit in the lease. Contingent payments in excess of the fixed minimum payments are recognizedwhen reported by theater operators, provided collectibility is reasonably assured.For operating leases, initial payments and fixed minimum ongoing payments are recognized as revenue on a straight-line basis over the lease term. Foroperating leases, the lease term is considered to commence when all of the following conditions have been met: (i) the projector, sound system and screensystem have been installed and are in full working condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist traininghas been completed, and (iv) the earlier of (a) receipt of the written customer acceptance certifying the completion of installation and run-in testing of theequipment and the completion of projectionist training or (b) public opening of the theater. Contingent payments in excess of fixed minimum ongoing paymentsare recognized as revenue when reported by theater operators, provided collectibility is reasonably assured.Revenues from joint revenue sharing arrangements with upfront payments that qualify for classification as sales and sales-type leases are recognized inaccordance with the sales and sales-type lease criteria discussed above. Contingent revenues from joint revenue sharing arrangements are recognized as box-office results and concessions revenues are reported by the theater operator, provided collectibility is reasonably assured.Equipment and components allocated to be used in future joint revenue sharing arrangements, as well as direct labor costs and an allocation of directproduction costs, are included in assets under construction until such equipment is installed and in working condition, at which time the equipment isdepreciated on a straight-line basis over the lesser of the term of the joint revenue sharing arrangement and the equipment’s anticipated useful life.Finance IncomeFinance income is recognized over the term of the lease or over the period of time specified in the sales arrangement, provided collectibility is reasonablyassured. Finance income recognition ceases when the Company determines that the associated receivable is not collectible.Finance income is suspended when the Company identifies a theater that is delinquent, non-responsive or not negotiating in good faith with theCompany. Once the collectibility issues are resolved the Company will resume recognition of finance income.Terminations, Consensual Buyouts and ConcessionsThe Company enters into theater system arrangements with customers that provide for customer payment obligations prior to the scheduled installationof the theater system. During the period of time between signing and the installation of the theater system, which may extend several years, certain customersmay be unable to, or elect not to, proceed with the theater system installation for a number of reasons including business considerations, or the inability toobtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the arrangement may beterminated under the default provisions of the arrangement or by mutual agreement between the Company and the customer (a “consensual buyout”).Terminations by default are situations when a customer does not meet the payment obligations under an arrangement and the Company retains the amountspaid by the customer. Under a consensual buyout, the Company and the customer agree, in writing, to a settlement and to release each other of any furtherobligations under the arrangement or an arbitrated settlement is reached. Any initial payments retained or additional payments received by the Company arerecognized as revenue when the settlement arrangements are executed and the cash is received, respectively. These termination and consensual buyout amountsare recognized in Other revenues. 49Table of ContentsIn addition, the Company could agree with customers to convert their obligations for other theater system configurations that have not yet been installedto arrangements to acquire or lease the IMAX digital theater system. The Company considers these situations to be a termination of the previous arrangementand origination of a new arrangement for the IMAX digital theater system. For all arrangements entered into or modified prior to the date of adoption of theamended FASB ASC 605-25, the Company continues to defer an amount of any initial fees received from the customer such that the aggregate of the feesdeferred and the net present value of the future fixed initial and ongoing payments to be received from the customer equals the selling price of the IMAX digitaltheater system to be leased or acquired by the customer. Any residual portion of the initial fees received from the customer for the terminated theater system isrecorded in Other revenues at the time when the obligation for the original theater system is terminated and the new theater system arrangement is signed. Underthe amended FASB ASC 605-25, as described in note 2(m) to the accompanying notes to the audited consolidated financial statements, for all arrangementsentered into or materially modified after the date of adoption, the total arrangement consideration to be received is allocated on a relative selling price basis to thedigital upgrade and the termination of the previous theater system. The arrangement consideration allocated to the termination of the existing arrangement isrecorded in Other revenues at the time when the obligation for the original theater system is terminated and the new theater system arrangement is signed.The Company may offer certain incentives to customers to complete theater system transactions including payment concessions or free services andproducts such as film licenses or 3D glasses. Reductions in, and deferral of, payments are taken into account in determining the sales price either by a directreduction in the sales price or a reduction of payments to be discounted in accordance with the Leases or Interests Topic of the FASB ASC. Free products andservices are accounted for as separate units of accounting. Other consideration given by the Company to customers are accounted for in accordance with theRevenue Recognition Topic of the FASB ASC.Maintenance and Extended Warranty ServicesMaintenance and extended warranty services may be provided under a multiple element arrangement or as a separately priced contract. Revenues relatedto these services are deferred and recognized on a straight-line basis over the contract period and are recognized in Services revenues. Maintenance and extendedwarranty services includes maintenance of the customer’s equipment and replacement parts. Under certain maintenance arrangements, maintenance servicesmay include additional training services to the customer’s technicians. All costs associated with this maintenance and extended warranty program are expensedas incurred. A loss on maintenance and extended warranty services is recognized if the expected cost of providing the services under the contracts exceeds therelated deferred revenue.OtherThe Company recognizes revenue in Services revenue from its owned and operated theaters resulting from box-office ticket and concession sales astickets are sold, films are shown and upon the sale of various concessions. The sales are cash or credit card transactions with theatergoers based on fixedprices per seat or per concession item.In addition, the Company enters into commercial arrangements with third party theater owners resulting in the sharing of profits and losses which arerecognized in Service revenues when reported by such theaters. The Company also provides management services to certain theaters and recognizes revenueover the term of such services.Revenues on camera rentals are recognized in Rental revenue over the rental period.Revenue from the sale of 3D glasses is recognized in Equipment and product sales revenue when the 3D glasses have been delivered to the customer.Other service revenues are recognized in Service revenues when the performance of contracted services is complete.Film Production and IMAX DMR ServicesIn certain film arrangements, the Company produces a film financed by third parties, whereby the third party retains the copyright and the Companyobtains exclusive distribution rights. Under these arrangements, the Company is entitled to receive a fixed fee or to retain as a fee the excess of funding overcost of production (the “production fee”). The third parties receive a portion of the revenues received by the Company from distributing the film, which ischarged to costs and expenses applicable to revenues-services. The production fees are deferred, and recognized as a reduction in the cost of the film, based onthe ratio of the Company’s distribution revenues recognized in the current period to the ultimate distribution revenues expected from the film. 50Table of ContentsRevenue from film production services where the Company does not hold the associated distribution rights are recognized in Service revenues whenperformance of the contractual service is complete, provided there is persuasive evidence of an agreement, the fee is fixed or determinable and collectibility isreasonably assured.Revenues from digitally re-mastering (IMAX DMR) films where third parties own or hold the copyrights and the rights to distribute the film are derivedin the form of processing fees and recoupments calculated as a percentage of box-office receipts generated from the re-mastered films. Processing fees arerecognized as Service revenues when the performance of the related re-mastering service is completed, provided there is persuasive evidence of an arrangement,the fee is fixed or determinable and collectibility is reasonably assured. Recoupments, calculated as a percentage of box-office receipts, are recognized asServices revenues when box-office receipts are reported by the third party that owns or holds the related film rights, provided collectibility is reasonablyassured.Losses on film production and IMAX DMR services are recognized as costs and expenses applicable to revenues-services in the period when it isdetermined that the Company’s estimate of total revenues to be realized by the Company will not exceed estimated total production costs to be expended on thefilm production and the cost of IMAX DMR services.Film DistributionRevenue from the licensing of films is recognized in Services revenues when persuasive evidence of a licensing arrangement exists, the film has beencompleted and delivered, the license period has begun, the fee is fixed or determinable and collectibility is reasonably assured. When license fees are based on apercentage of box-office receipts, revenue is recognized when box-office receipts are reported by exhibitors, provided collectibility is reasonably assured.Film Post-Production ServicesRevenues from post-production film services are recognized in Services revenue when performance of the contracted services is complete provided thereis persuasive evidence of an arrangement, the fee is fixed or determinable and collectibility is reasonably assured.Allowances for Accounts Receivable and Financing ReceivablesAllowances for doubtful accounts receivable are based on the Company’s assessment of the collectibility of specific customer balances, which is basedupon a review of the customer’s credit worthiness, past collection history and the underlying asset value of the equipment, where applicable. Interest onoverdue accounts receivable is recognized as income as the amounts are collected.The Company monitors the performance of the theaters to which it has leased or sold theater systems which are subject to ongoing payments. Whenfacts and circumstances indicate that there is a potential impairment in the accounts receivable, net investment in lease or a financing receivable, the Companywill evaluate the potential outcome of either renegotiations involving changes in the terms of the receivable or defaults on the existing lease or financed saleagreements. The Company will record a provision if it is considered probable that the Company will be unable to collect all amounts due under the contractualterms of the arrangement or a renegotiated lease amount will cause a reclassification of the sales-type lease to an operating lease.When the net investment in lease or the financing receivable is impaired, the Company will recognize a provision for the difference between the carryingvalue in the investment and the present value of expected future cash flows discounted using the effective interest rate for the net investment in the lease or thefinancing receivable. If the Company expects to recover the theater system, the provision is equal to the excess of the carrying value of the investment over thefair value of the equipment.When the minimum lease payments are renegotiated and the lease continues to be classified as a sales-type lease, the reduction in payments is applied toreduce unearned finance income.These provisions are adjusted when there is a significant change in the amount or timing of the expected future cash flows or when actual cash flowsdiffer from cash flow previously expected.Once a net investment in lease or financing receivable is considered impaired, the Company does not recognize interest income until the collectibilityissues are resolved. When finance income is not recognized, any payments received are applied against outstanding gross minimum lease amounts receivableor gross receivables from financed sales. 51Table of ContentsInventoriesInventories are carried at the lower of cost, determined on an average cost basis, and net realizable value except for raw materials, which are carried out atthe lower of cost and replacement cost. Finished goods and work-in-process include the cost of raw materials, direct labor, theater design costs, and anapplicable share of manufacturing overhead costs.The costs related to theater systems under sales and sales-type lease arrangements are relieved from inventory to costs and expenses applicable torevenues-equipment and product sales when revenue recognition criteria are met. The costs related to theater systems under operating lease arrangements andjoint revenue sharing arrangements are transferred from inventory to assets under construction in property, plant and equipment when allocated to a signedjoint revenue sharing arrangement or when the arrangement is first classified as an operating lease.The Company records write-downs for excess and obsolete inventory based upon current estimates of future events and conditions, including theanticipated installation dates for the current backlog of theater system contracts, technological developments, signings in negotiation, growth prospects withinthe customers’ ultimate marketplace and anticipated market acceptance of the Company’s current and pending theater systems.Finished goods inventories can contain theater systems for which title has passed to the Company’s customer, under the contract, but the revenuerecognition criteria as discussed above have not been met.Asset ImpairmentsThe Company performs a qualitative, and when necessary quantitative, impairment test on its goodwill on an annual basis, coincident with the year-end, as well as in quarters where events or changes in circumstances suggest that the carrying amount may not be recoverable.Goodwill impairment is assessed at the reporting unit level by comparing the unit’s carrying value, including goodwill, to the fair value of the unit. TheCompany completed a full quantitative analysis as required by ASC 350 – “Intangibles – Goodwill and Other” (Step 1) in 2010. The carrying values of eachunit are subject to allocations of certain assets and liabilities that the Company has applied in a systematic and rational manner. The fair value of theCompany’s units is assessed using a discounted cash flow model. The model is constructed using the Company’s budget and long-range plan as a base. TheCompany performs a qualitative assessment of its reporting units and certain select quantitative calculations against its current long range plan to determinewhether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount (Step 0).As at December 31, 2013, the fair values of the Company’s reporting units substantially exceeded their carrying values and no qualitative factors existedduring the year to indicate that it is more likely than not that the fair value of any of its reporting units are less than its respective carrying amount. Significantestimates and judgment are involved in the impairment test.Long-lived asset impairment testing is performed at the lowest level of an asset group at which identifiable cash flows are largely independent. Inperforming its review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset or asset group and its eventualdisposition. If the sum of the expected future cash flows is less than the carrying amount of the asset or asset group, an impairment loss is recognized in theconsolidated statement of operations. Measurement of the impairment loss is based on the excess of the carrying amount of the asset or asset group over the fairvalue calculated using discounted expected future cash flows.The Company’s estimates of future cash flows involve anticipating future revenue streams, which contain many assumptions that are subject tovariability, as well as estimates for future cash outlays, the amounts of which, and the timing of which are both uncertain. Actual results that differ from theCompany’s budget and long-range plan could result in a significantly different result to an impairment test, which could impact earnings.Foreign Currency TranslationMonetary assets and liabilities of the Company’s operations which are denominated in currencies other than the functional currency are translated intothe functional currency at the exchange rates prevailing at the end of the period. Non-monetary items are translated at historical exchange rates. Revenue andexpense transactions are translated at exchange rates prevalent at the transaction date. In 2013, the Company determined that the functional currency of one ofits wholly-owned subsidiaries had changed from the Company’s reporting currency to the currency of the nation in which it domiciled. The adjustmentattributable to current-rate translation of non-monetary assets as of the date of the change was reported in other comprehensive income (“OCI”). The functionalcurrency of its other wholly-owned subsidiaries continues to be the United States dollar. Such exchange gains and losses are included in the determination ofearnings in the period in which they arise. 52Table of ContentsForeign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) are recognized inthe consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreign currency hedginginstruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in OCI and reclassified to the consolidated statement ofoperations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the consolidated statement of operations.Pension Plan and Postretirement Benefit Obligations AssumptionsThe Company’s pension plan and postretirement benefit obligations and related costs are calculated using actuarial concepts, within the framework ofthe Compensation – Retirement Benefits Topic of the FASB ASC. A critical assumption to this accounting is the discount rate. The Company evaluates thiscritical assumption annually or when otherwise required to by accounting standards. Other assumptions include factors such as expected retirement date,mortality rate, rate of compensation increase, and estimates of inflation.The discount rate enables the Company to state expected future cash payments for benefits as a present value on the measurement date. The guideline forsetting this rate is a high-quality long-term corporate bond rate. A lower discount rate increases the present value of benefit obligations and increases pensionexpense. The Company’s discount rate was determined by considering the average of pension yield curves constructed from a large population of high-qualitycorporate bonds. The resulting discount rate reflects the matching of plan liability cash flows to the yield curves.The discount rate used is a key assumption in the determination of the pension benefit obligation and expense. A 1.0% change in the discount rate usedcould result in a $2.3 million — $2.8 million increase or decrease in the pension benefit obligation with a corresponding benefit or charge recognized in othercomprehensive income in the year.Deferred Tax Asset ValuationAs at December 31, 2013, the Company had net deferred income tax assets of $24.3 million. The Company’s management assesses realization of itsdeferred tax assets based on all available evidence in order to conclude whether it is more likely than not that the deferred tax assets will be realized. Availableevidence considered by the Company includes, but is not limited to, the Company’s historical operating results, projected future operating results, reversingtemporary differences, contracted sales backlog at December 31, 2013, changing business circumstances, and the ability to realize certain deferred tax assetsthrough loss and tax credit carry-back and carry-forward strategies.When there is a change in circumstances that causes a change in judgment about the realizability of the deferred tax assets, the Company would adjustthe applicable valuation allowance in the period when such change occurs.Tax ExposuresThe Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incuradditional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company adjusts tax expense to reflect the Company’songoing assessments of such matters which require judgment and can materially increase or decrease its effective rate as well as impact operating results. TheCompany provides for such exposures in accordance with Income Taxes Topic of the FASB ASC.Stock-Based CompensationThe Company’s stock-based compensation generally includes stock options, restricted share units (“RSUs”) and stock appreciation rights (“SARs”).The Company estimates the fair value of stock option and SAR awards on the date of grant using fair value measurement techniques. The fair value ofRSU awards is equal to the closing price of the Company’s common stock on the date of grant.The Company utilizes a lattice-binomial option-pricing model (the “Binomial Model”) to determine the fair value of stock option and SAR awards. Thefair value determined by the Binomial Model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex andsubjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual andprojected employee stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exercise price togrant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that haveno 53Table of Contentsvesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options and SARs have certain characteristics that aresignificantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’sopinion, the Binomial Model best provides an accurate measure of the fair value of the Company’s employee stock options and SARs. Although the fair valueof employee stock options and SARs are determined in accordance with the Equity topic of the FASB ASC using an option-pricing model, that value may notbe indicative of the fair value observed in a willing buyer/willing seller market transaction.Impact of Recently Issued Accounting PronouncementsSee note 3 to the audited consolidated financial statements in Item 8 of the Company’s 2013 Form 10-K for information regarding the Company’s recentchanges in accounting policies and the impact of recently issued accounting pronouncements impacting the Company.DISCONTINUED OPERATIONSOn January 30, 2014, the Company’s lease with respect to its owned and operated Nyack IMAX theater ended and the Company has decided not torenew the lease. In 2013, revenues for the Nyack IMAX theater were $1.3 million (2012 — $1.5 million, 2011 — $1.5 million) and the Company recognizeda loss of $0.3 million, net of a tax recovery of $0.2 million, in 2013 (2012 — loss of $0.5 million, 2011 — loss of $0.9 million) from the operation of thetheater. The transactions of the Company’s owned and operated Nyack theater are reflected as discontinued operations. The remaining assets and liabilities ofthe Nyack owned and operated theater are included in the Company’s consolidated balance sheet as at December 31, 2013 and are disclosed in note 22 to theaudited consolidated financial statements in Item 8 of the Company’s 2013 Form 10-K.ASSET IMPAIRMENTS AND OTHER CHARGES (RECOVERIES)The following table identifies the Company’s charges (recoveries) relating to the impairment of assets: Years Ended December 31, (in thousands of U.S. dollars) 2013 2012 2011 Asset impairments Property, plant and equipment $— $— $20 Other charges (recoveries): Accounts receivable (35) 606 333 Financing receivables 480 (82) 1,237 Inventories 444 898 — Impairment of available-for-sale investment — 150 — Property, plant and equipment 384 18 356 Other intangible assets 63 11 — Other assets — 6 — Total asset impairments and other charges $1,336 $1,607 $1,946 Asset ImpairmentsThe Company records asset impairment charges for property, plant and equipment after an assessment of the carrying value of certain asset groups inlight of their future expected cash flows. No such charges were recognized in 2013 and 2012. During 2011, the Company recorded total asset impairmentcharges of less than $0.1 million as the Company recognized that the carrying values for the assets exceeded the expected undiscounted future cash flows.Other Charges (Recoveries)The Company recorded a $0.5 million provision (2012 — $0.9 million; 2011 — $nil) in costs and expenses applicable to revenues due to a reductionin the net realizable value of its inventories. These charges primarily resulted from a reduction in the net realizable value of its film-based projector inventoriesand certain service part inventories due to a further market shift away from film-based projector systems. 54Table of ContentsThe Company recorded a net recovery of less than $0.1 million in 2013 (2012 — $0.6 million provision; 2011 — $0.3 million provision) in accountsreceivable based on the Company’s ongoing assessment of the collectability of specific customer balances.In 2013, the Company also recorded a net provision of $0.5 million in financing receivables (2012 — $0.1 million recovery; 2011 — $1.2 millionprovision). Provisions of the Company’s financing receivables is recorded when the collectibility associated with certain financing receivables is uncertain.These provisions are adjusted when there is a significant change in the amount or timing of the expected future cash flows or when actual cash flows differfrom cash flows previously expected.In 2012, the Company recognized a $0.2 million other-than-temporary impairment of its available-for-sale investment as the value is not expected torecover based on the length of time and extent to which the market value has been less than cost. After assessment, no such impairment was required in 2013.In 2013, the Company recorded a charge of $0.4 million (2012 — less than $0.1 million; 2011 — $0.4 million) reflecting assets that no longer meetcapitalization requirements as the assets were no longer in use.NON-GAAP FINANCIAL MEASURESIn this report, the Company presents adjusted net income and adjusted net income per diluted share as supplemental measures of performance of theCompany, which are not recognized under U.S. GAAP. The Company presents adjusted net income and adjusted net income per diluted share because itbelieves that they are important supplemental measures of its comparable controllable operating performance and it wants to ensure that its investors fullyunderstand the impact of its stock-based compensation (net of any related tax impact) on its net income. The Company presents gross margin from its jointrevenue sharing arrangements segment excluding initial launch costs because it believes that it is an important supplemental measure used by management toevaluate ongoing joint revenue sharing arrangement theater performance. Management uses these measures to review operating performance on a comparablebasis from period to period. However, these non-GAAP measures may not be comparable to similarly titled amounts reported by other companies. Adjusted netincome and adjusted net income per diluted share should be considered in addition to, and not as a substitute for, net income and other measures of financialperformance reported in accordance with U.S. GAAP. 55Table of ContentsRESULTS OF OPERATIONSManagement, including the Company’s CEO, who is the Company’s Chief Operating Decision Maker (as defined in the Segment Reporting Topic of theFASB ASC), assesses segment performance based on segment revenues, gross margins and film performance. Selling, general and administrative expenses,research and development costs, amortization of intangibles, receivables provisions (recoveries), write-downs net of recoveries, interest income, interest expenseand tax (provision) recovery are not allocated to the segments. As identified in note 19 to the audited consolidated financial statements in Item 8 of theCompany’s 2013 Form 10-K, the Company has the following seven reportable segments identified by category of product sold or service provided: • IMAX Theater Systems • The IMAX systems segment, which is comprised of the design, manufacture, sale or lease of IMAX theater projection systemequipment. • The theater system maintenance segment, which is comprised of the maintenance of IMAX theater projection system equipment inthe IMAX theater network. • The joint revenue sharing arrangements segment, which is comprised of the provision of IMAX theater projection system equipmentto exhibitors in exchange for a certain percentage of box-office receipts, and in some cases, concession revenue and/or a smallupfront or initial payment. • The other segment, which includes certain IMAX theaters that the Company owns and operates, camera rentals and othermiscellaneous items. • Film • The film production and IMAX DMR segment, which is comprised of the production of films and performance of film re-mastering services. • The film distribution segment, which includes the distribution of films for which the Company has distribution rights. • The film post-production segment, which includes the provision of film post-production and film print services.The accounting policies of the segments are the same as those described in note 2 to the audited consolidated financial statements in Item 8 of theCompany’s 2013 Form 10-K.The Company’s Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations has been organized by theCompany into two primary reporting groups – IMAX Theater Systems and Film. Each of the Company’s reportable segments, as identified above, have beenclassified into one of these broader reporting groups for purposes of MD&A discussion. The Company believes that this approach is consistent withmanagement’s view of the business and is not expected to have an impact on the readers’ ability to understand the Company’s business. Management feels thata discussion and analysis based on its reporting groups is significantly more relevant as the Company’s consolidated statements of operations captionscombine results from several segments. 56Table of ContentsThe following table sets forth the breakdown of revenue and gross margin by category: Revenue Gross Margin (In thousands of U.S. dollars) Years Ended December 31, Years Ended December 31, 2013 2012(3) 2011(3) 2013 2012(3) 2011(3) IMAX Theater Systems IMAX Systems Sales and sales-type leases(1) $65,944 $69,988 $81,310 $35,652 $36,974 $45,251 Ongoing rent, fees, and finance income(2) 14,245 13,417 11,890 13,388 13,271 11,678 Other 11,182 13,019 11,393 102 1,057 510 91,371 96,424 104,593 49,142 51,302 57,439 Theater System Maintenance 31,978 28,629 24,840 12,096 10,970 9,437 Joint Revenue Sharing Arrangements 64,130 57,526 30,764 44,565 37,308 17,605 Film Production and IMAX DMR 83,496 78,050 50,592 56,088 49,355 23,574 Film distribution and post-production 16,962 22,126 24,309 2,712 4,310 6,010 100,458 100,176 74,901 58,800 53,665 29,584 $287,937 $282,755 $235,098 $164,603 $153,245 $114,065 (1)Includes initial payments and the present value of fixed minimum payments from equipment, sales and sales-type lease transactions.(2)Includes rental income from operating leases, contingent rents from operating and sales-type leases, contingent fees from sales arrangements and financeincome.(3)In January 2014, the Company discontinued the operations of its owned and operated Nyack IMAX theater. The Company has reclassified the revenueand costs and expenses applicable to revenues from continuing operations, previously included in its IMAX Theater Systems – Other segment, todiscontinued operations. As a result, the respective prior years’ figures have been reclassified to conform to the current year’s presentation. 57Table of ContentsYear Ended December 31, 2013 Versus Year Ended December 31, 2012The Company reported net income of $44.1 million or $0.66 per basic share and $0.64 per diluted share for the year ended December 31, 2013 ascompared to net income of $41.3 million or $0.63 per basic share and $0.61 per diluted share for the year ended December 31, 2012. Net income for the yearended December 31, 2013 includes a $11.9 million charge or $0.17 per diluted share (2012 — $13.1 million or $0.19 per diluted share) for stock-basedcompensation. Adjusted net income, which consists of net income excluding the impact of stock-based compensation and the related tax impact, was $55.7million or $0.81 per diluted share for the year ended December 31, 2013 as compared to adjusted net income of $54.3 million or $0.80 per diluted share for theyear ended December 31, 2012. A reconciliation of net income, the most directly comparable U.S. GAAP measure, to adjusted net income and adjusted netincome per diluted share is presented in the table below: Year Ended December 31, 2013 2012 Net Income Diluted EPS Net Income Diluted EPS Net income $44,115 $0.64 $41,337 $0.61 Add: Stock-based compensation 11,928 0.17 13,113 0.19 Tax expense on items listed above (344) — (160) — Adjusted net income $55,699 $0.81 $54,290 $0.80 Weighted average diluted shares outstanding 68,961 67,933 Revenues and Gross MarginThe Company’s revenues for the year ended December 31, 2013 increased 1.8% to $287.9 million from $282.8 million in 2012, largely due to anincrease in revenues from the Company’s joint revenue sharing arrangements, production and DMR, and theater system maintenance segments, offsetpartially by a decrease in revenue from the IMAX systems segment. The gross margin across all segments in 2013 was $164.6 million, or 57.2% of totalrevenue, compared to $153.3 million, or 54.2% of total revenue in 2012.IMAX SystemsIMAX systems revenue decreased 5.2% to $91.4 million in 2013 as compared to $96.4 million in 2012. Revenue from sales and sales-type leasesdecreased 5.8% to $65.9 million in 2013 from $70.0 million in 2012. The Company recognized revenue on 45 full, new theater systems which qualified aseither sales or sales-type leases in 2013, with a total value of $54.9 million, versus 47 full, new theater systems in 2012 with a total value of $60.7 million.Additionally, the Company recognized revenue on the installation of 5 xenon-based digital upgrades in 2013, with a total value of $3.2 million, as compared to12 xenon-based digital upgrades and one 3D GT upgrade (from a 2D GT system) in 2012, with a total value of $5.4 million. Digital upgrades typically havelower sales prices and gross margin than full theater system installations. The Company has decided to offer digital upgrades at lower selling prices forstrategic reasons since the Company believes that digital theater systems increase flexibility and profitability for the Company’s existing exhibition customers.In 2013, the Company installed and recognized one used 3D GT theater system with a total value of $1.2 million. There were no used theater systems installedin the year ended December 31, 2012.Average revenue per full, new sales and sales-type lease systems was $1.2 million in 2013, compared to $1.3 million 2012. Average revenue per digitalupgrade was $0.6 million in 2013, as compared to $0.4 million in 2012. The average revenue per full, new sales and sales-type lease systems variesdepending upon the number of theater system commitments with a single respective exhibitor, an exhibitor’s location or other various factors. 58Table of ContentsThe breakdown in mix of sales and sales-type lease and joint revenue sharing arrangements (see discussion below) installations by theater systemconfiguration for 2013 and 2012 is outlined in the table below: 2013 2012 New IMAX xenon-based digital theater systems - installed and recognized Sales and sales-types lease arrangements 46(1)(2) 47 Short-term operating lease arrangement 1(3) — Joint revenue sharing arrangement 65(3) 60 Total new theater systems 112 107 IMAX xenon-based digital theater system upgrades - installed and recognized Sales and sales-types lease arrangements 5 13(4) Short-term operating lease arrangement 13(3) — Joint revenue sharing arrangement 3(3) 2 Total upgraded theater systems 21 15 IMAX xenon-based digital theater system upgrades - installed and deferred — 3 Total theater systems installed 133 125 (1)Includes one used IMAX 3D GT system resulting in an addition to the Company’s institutional theater network.(2)Includes one IMAX Private Theater, the first of its kind in the Company’s theater network.(3)Reflects xenon-based digital system configurations, which will be upgraded to a laser-based digital system configuration at a future date.(4)Includes one upgrade under a sale arrangement from a 2D GT projection system to a 3D projection systemRevenues from sales and sales-type leases include settlement revenue of $0.4 million in 2013 as compared to $0.7 million in 2012.IMAX theater system margin from full, new sales and sales-type lease systems, excluding the impact of settlements, was 63.3% in 2013, as compared to62.4% in 2012. Gross margin from digital upgrades was $1.3 million in 2013, as compared to $1.4 million in 2012. In addition, in 2012, the Companyincurred a charge of $1.7 million for equipment to enable certain theaters to elect to exhibit certain films in either digital or analog format. Furthermore, in2013, the Company recorded a write-down of certain film-based projector inventories of $0.3 million, as compared to $0.8 million in 2012.In 2013, the Company recognized revenue for 10 theater systems under a digital upgrade sales arrangement which were previously installed, but forwhich revenue recognition was deferred. The arrangement provided the customer with standard digital upgrades, which were installed, and a number of as-of-yet undeveloped upgrades. The Company’s policy is to defer revenue recognition until the upgrade right expires, if applicable, or a digital upgrade isdelivered. In 2013, the upgrade right in the agreement expired resulting in the contract consideration becoming fixed. Therefore, the Company recognizedrevenue and gross margin of $3.1 million and a loss of $0.3 million, respectively, from these 10 theater systems which qualify as sales.In 2013, one of the Company’s customers acquired an IMAX theater from another existing customer that had been operating under a joint revenuesharing arrangement. This theater was purchased from the Company under a sale arrangement. As a result of this sale transaction, the Company recordedrevenue and margin of $0.9 million and $0.6 million, respectively. The above-referenced theater was included in the Company’s 2013 signings total. In 2012,one of the Company’s customers acquired 3 IMAX theaters from another existing customer that had been operating under a joint revenue sharing arrangement.These theaters were purchased from IMAX under a sales arrangement. As a result of this sale transaction, the Company recorded revenue and margin of $3.0million and $2.1 million, respectively. The above-referenced theaters were included in the Company’s 2012 signings total. In addition, during the 2012comparative period, the Company recognized the xenon-based digital upgrade of two theaters under a joint revenue sharing arrangement, which were previouslyoperated under sales/sales-type lease arrangements.Ongoing rent revenue and finance income increased to $14.2 million in 2013 compared to $13.4 million in 2012. Gross margin for ongoing rent andfinance income increased to $13.4 million in 2013 from $13.3 million in 2012. Contingent fees included in this caption amounted to $3.7 million and$3.0 million in 2013 and 2012, respectively.Other revenue decreased to $11.2 million in 2013 as compared to $13.0 million in 2012, largely due to a decrease in revenue from the Company’s after-market sales of 3D glasses. Other revenue primarily includes revenue generated from the Company’s theater operations, camera rental business and after-market sales of projection system parts and 3D glasses. 59Table of ContentsThe gross margin on other revenue was $1.0 million lower in 2013 as compared to 2012, primarily due to a lower level of after-market sales.Theater System MaintenanceTheater system maintenance revenue increased 11.7% to $32.0 million in 2013, as compared to $28.6 million in 2012. Theater system maintenancegross margin increased to $12.1 million in 2013 from $11.0 million in 2012. In 2013, the Company recorded a write-down of $0.2 million for certain serviceparts inventories as compared to $0.1 million in 2012. Maintenance margins vary depending on the mix of theater system configurations in the theater networkand the timing and the date(s) of installation and/or service.Joint Revenue Sharing ArrangementsRevenues from joint revenue sharing arrangements increased 11.5% to $64.1 million in 2013, as compared to $57.5 million in 2012. The Companyended the year with 382 theaters operating under joint revenue sharing arrangements, as compared to 316 theaters at the end of 2012, an increase of 20.9%.The increase in revenues from joint revenue sharing arrangements was largely due to the greater number of theaters under joint revenue sharing arrangements inoperation as compared to the prior year. During 2013, the Company installed 65 full, new theaters under joint revenue sharing arrangements, as compared to60 full new theaters during 2012.The gross margin from joint revenue sharing arrangements in 2013 increased 19.5% to $44.6 million compared to $37.3 million in 2012. Included inthe calculation of the 2013 gross margin were certain advertising, marketing and commission costs primarily associated with new theater launches of$3.6 million, as compared to $3.4 million for such expenses in 2012. Adjusted gross margin from joint revenue sharing arrangements, which excludes theseexpenses from both periods, was $48.1 million in 2013, compared to $40.7 million in 2012. A reconciliation of gross margin from the joint revenue sharingarrangement segment, the most directly comparable U.S. GAAP measure, to adjusted gross margin is presented in the table below: (In thousands of U.S. Dollars) 2013 2012 Gross margin from joint revenue sharing arrangements $44,565 $37,308 Add: Advertising, marketing and commission costs 3,582 3,382 Adjusted gross margin from joint revenue sharing arrangements $48,147 $40,690 60Table of ContentsFilmRevenue from the Company’s film segments was $100.5 million in 2013 and $100.2 million in 2012. Gross box-office generated by IMAX DMR filmsincreased 17.1% to $726.6 million in 2013 from $620.6 million in 2012, largely driven by continued network growth. Film production and IMAX DMRrevenues increased 7.0% to $83.5 million in 2013 from $78.1 million in 2012. Gross box-office per screen for 2013 averaged $1,150,900, in comparison to$1,153,200 in 2012. In 2013, gross box-office was generated primarily from the exhibition of 44 films listed below (38 new and 6 carryovers), as compared to39 (35 new and 4 carryover) films exhibited in 2012: 2013 Films Exhibited 2012 Films ExhibitedThe Polar Express: An IMAX 3D Experience Happy Feet Two: An IMAX 3D ExperienceSkyfall: The IMAX Experience Mission: Impossible – Ghost Protocol: The IMAX ExperienceLife of Pi: An IMAX 3D Experience The Adventures of Tintin: The Secret of the Unicorn: An IMAXCZ12: An IMAX 3D Experience 3D ExperienceThe Hobbit: An Unexpected Journey: An IMAX 3D Experience Flying Swords of Dragon Gate: An IMAX 3D ExperienceLes Misérables: The IMAX Experience Underworld: Awakening: An IMAX 3D ExperienceThe Grandmaster: The IMAX Experience Journey 2: The Mysterious Island: An IMAX 3D ExperienceHansel & Gretel: Witch Hunters: An IMAX 3D Experience The Lorax: An IMAX 3D ExperienceJourney to the West: Conquering the Demons: An IMAX 3D John Carter: An IMAX 3D ExperienceExperience The Hunger Games: An IMAX 3D ExperienceTop Gun: An IMAX 3D Experience Wrath of the Titans: An IMAX 3D ExperienceA Good Day to Die Hard: The IMAX Experience Titanic: An IMAX 3D ExperienceJack the Giant Slayer: An IMAX 3D Experience Houba! On the Trail of the Marsupilami: The IMAX ExperienceOz: The Great and Powerful: An IMAX 3D Experience Battleship: The IMAX ExperienceG.I. Joe: Retaliation: An IMAX 3D Experience The Avengers: An IMAX 3D ExperienceDragon Ball Z: Battle of the Gods: An IMAX 3D Experience Dark Shadows: The IMAX ExperienceJurassic Park: An IMAX 3D Experience Men In Black III: An IMAX 3D ExperienceOblivion: The IMAX Experience Prometheus: An IMAX 3D ExperienceIron Man 3: An IMAX 3D Experience Madagascar 3: Europe’s Most Wanted: An IMAX 3D ExperienceStar Trek Into Darkness: An IMAX 3D Experience Rock of Ages: The IMAX ExperienceFast & Furious 6: The IMAX Experience The Amazing Spiderman: An IMAX 3D ExperienceAfter Earth: The IMAX Experience The Dark Knight Rises: The IMAX ExperienceMan of Steel: An IMAX 3D Experience Total Recall: The IMAX ExperienceWorld War Z: An IMAX 3D Experience The Bourne Legacy: The IMAX ExperienceDespicable Me 2: An IMAX 3D Experience Indiana Jones and the Raiders of the Lost Ark: The IMAXWhite House Down: The IMAX Experience ExperienceMan of Tai Chi: The IMAX Experience Resident Evil: Retribution: An IMAX 3D ExperienceLone Ranger: The IMAX Experience Tai Chi 0: An IMAX 3D ExperiencePacific Rim: An IMAX 3D Experience Frankenweenie: An IMAX 3D ExperienceElysium: An IMAX 3D Experience Paranormal Activity 4:The IMAX ExperienceThe Mortal Instruments: City of Bones: An IMAX 3D Experience Tai Chi Hero: An IMAX 3D ExperienceRiddick: An IMAX 3D Experience Cloud Atlas: The IMAX ExperienceThe Wizard of Oz: An IMAX 3D Experience Skyfall: The IMAX ExperienceYoung Detective Dee: Rise of the Sea Dragon: An IMAX 3D Cirque du Soleil: Worlds Away: An IMAX 3D ExperienceExperience The Twilight Saga: Breaking Dawn – Part 2: The IMAXMetallica Through the Never: An IMAX 3D Experience ExperienceGravity: An IMAX 3D Experience Back to 1942: The IMAX ExperienceStalingrad: An IMAX 3D Experience Rise of the Guardians: An IMAX 3D ExperienceCaptain Phillips: The IMAX Experience Life of Pi: An IMAX 3D ExperienceThe Young and Prodigious T.S. Spivet: An IMAX 3D Experience CZ12: An IMAX 3D ExperienceThor: The Dark World: An IMAX 3D Experience The Hobbit: An Unexpected Journey: An IMAX 3D ExperienceEnder’s Game: The IMAX Experience Les Misérables: The IMAX ExperienceThe Hunger Games: Catching Fire: The IMAX Experience The Hobbit: The Desolation of Smaug: An IMAX 3D Experience Dhoom 3: The IMAX Experience Police Story: An IMAX 3D Experience Other revenues attributable to the film segment decreased 23.3% to $17.0 million in 2013 from $22.1 million in 2012. This decrease was largely due tothe result of the limited release of one IMAX original film in 2013. In November 2013, in conjunction with MFF, the Company did a limited release of anIMAX original production, Journey to the South Pacific whereas in 2012, the Company released the original film To the Arctic 3D. Journey to the SouthPacific will be distributed to additional IMAX theaters in 2014, as well as the Company’s latest original film Island of Lemurs: Madagascar. 61Table of ContentsThe Company’s gross margin from its film segments increased 9.6% in 2013 to $58.8 million from $53.7 million in 2012. Film production andIMAX DMR gross margins increased to $56.1 million from $49.4 million. Other gross margin attributable to the film segment was $2.7 million in 2013 ascompared to $4.3 million in 2012.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased to $82.7 million in 2013, as compared to $81.6 million in 2012. The $1.1 million increaseexperienced from the prior year comparative period was largely the result of the following: • a $2.4 million increase in salaries and benefits and other staff costs, net of lower travel and entertainment costs of $0.7 million; • a $1.9 million increase due to a change in foreign exchange rates. During the year ended December 31, 2013, the Company recorded a foreignexchange loss of $0.7 million for net foreign exchange gains/losses related to the translation of foreign currency denominated monetary assets andliabilities and unhedged foreign currency forward contracts as compared to a gain of $1.2 million recorded in 2012. See note 15(b) of the auditedconsolidated financial statements in Item 8 of the Company’s 2013 Form 10-K for more information; and • a $0.2 million net increase in other general corporate expenditures.These increases were partially offset by: • a $2.2 million decrease resulting from a gain on the curtailment of Canadian postretirement benefits; and; • a $1.2 million decrease in the Company’s stock-based compensation charges.Research and DevelopmentResearch and development expenses increased to $14.8 million in 2013 compared to $11.4 million in 2012 and are primarily attributable to thedevelopment of the Company’s new laser-based digital projection system. The Company is developing its next-generation laser projector, which is expected toprovide greater brightness and clarity, a wider color gamut and deeper blacks, while consuming less power and lasting longer than existing digital technology,to ensure that the Company continues to provide the highest quality, premier movie going experience available to consumers. As of December 31, 2013, theCompany had 62 laser-based digital theater systems in its backlog.A high level of research and development is expected to continue throughout 2014 as the Company continues its efforts to develop its next-generationlaser-based projection system. In addition, the Company plans to continue research and development activity in the future in other areas considered importantto the Company’s continued commercial success, including further improving the reliability of its projectors, developing IMAX theater systems’ capabilitiesin both home and live entertainment, developing more IMAX cameras, enhancing the Company’s 2D and 3D image quality, expanding the applicability of theCompany’s digital technology, and further enhancing the IMAX theater and sound system design through the addition of more channels, improvements to theCompany’s proprietary tuning system and mastering processes.Receivable Provisions, Net of RecoveriesReceivable provisions, net of recoveries for accounts receivable and financing receivables amounted to a net provision of $0.4 million in 2013, ascompared to $0.5 million in 2012.The Company’s accounts receivables and financing receivables are subject to credit risk. These receivables are concentrated with the leading theaterexhibitors and studios in the film entertainment industry. To minimize the Company’s credit risk, the Company retains title to underlying theater systemsleased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentially uncollectible amounts.Accordingly, the Company believes it has adequately protected itself against exposures relating to receivables and contractual commitments. 62Table of ContentsAsset Impairments and Other ChargesThe Company did not record any asset impairment charge in 2013 and 2012, against property, plant and equipment after the Company assessed thecarrying value of certain assets in its theater operations segment in light of their future expected cash flows. The Company recognized that the carrying valuesfor the assets did not exceed the expected undiscounted future cash flows.In 2012, the Company recognized a $0.2 million other-than-temporary impairment of its available-for-sale investment as the value is not expected torecover based on the length of time and extent to which the market value has been less than cost. No such charge was recognized in 2013.In 2013 and 2012, the Company recorded a charge of $0.4 million and less than $0.1 million, respectively, reflecting assets that no longer meetcapitalization requirements as the assets were no longer in use.Interest Income and ExpenseInterest income was $0.1 million in 2013, as compared to $0.1 million in 2012.Interest expense was $1.3 million in 2013, as compared to $0.7 million in 2012. Consistent with its historical financial reporting, the Company haselected to classify interest and penalties related to income tax liabilities, when applicable, as part of the interest expense in its consolidated statements ofoperations rather than income tax expense. In 2013 and 2012, the Company recovered less than $0.1 million and $0.8 million, respectively, in potential interestand penalties associated with its provision for uncertain tax positions. Also included in interest expense is the amortization of deferred finance costs in theamount of $0.5 million and $0.2 million in 2013 and 2012, respectively. The Company’s policy is to defer and amortize all the costs relating to debt financingwhich are paid directly to the debt provider, over the life of the debt instrument.Income TaxesThe Company’s effective tax rate differs from the statutory tax rate and varies from year to year primarily as a result of numerous permanentdifferences, investment and other tax credits, the provision for income taxes at different rates in foreign and other provincial jurisdictions, enacted statutory taxrate increases or reductions in the year, changes due to foreign exchange, changes in the Company’s valuation allowance based on the Company’srecoverability assessments of deferred tax assets, and favorable or unfavorable resolution of various tax examinations.In 2013, there was a $1.4 million increase in the Company’s estimates of the recoverability of its deferred tax assets based on an analysis of bothpositive and negative evidence including projected future earnings, as compared to a $0.1 million increase in the valuation allowance in the prior yearcomparative period. The Company recorded an income tax provision of $16.6 million for 2013, of which $0.1 million is related to a decrease in its provisionfor uncertain tax positions. For 2012, the Company recorded an income tax provision of $15.1 million, of which $0.8 million was related to a decrease in itsprovision for uncertain tax positions.During the year ended December 31, 2013, after considering all available evidence, both positive (including recent profits, projected future profitability,backlog, carryforward periods for utilization of net operating loss carryovers and tax credits, discretionary deductions and other factors) and negative(including cumulative losses in past years and other factors), it was concluded that the valuation allowance against the Company’s deferred tax assets shouldbe decreased by approximately $1.4 million. The remaining $4.8 million balance in the valuation allowance as at December 31, 2013 is primarily attributableto certain U.S. federal and state net operating loss carryovers and federal tax credits that may expire without being utilized.The Company anticipates utilizing the majority of its currently-available tax attributes over the next year. If utilized the related valuation allowance releasewould be recorded against other equity.Equity-Accounted InvestmentsThe Company accounts for investments in new business ventures using the guidance of the FASB ASC 323. December 31, 2013, the equity method ofaccounting is being utilized for investments with a total carrying value of $0.4 million (December 31, 2012 — $3.0 million). For the year ended December 31,2013, gross revenues, cost of revenue and net loss for these investments were $6.6 million, $26.0 million and $26.3 million, respectively (2012 — $9.0million, $12.7 million and $13.4 million, respectively). The Company recorded its proportionate share of the net loss which amounted to $2.8 million for2013 compared to $1.4 million in 2012. 63Table of ContentsDiscontinued OperationsOn January 30, 2014, the Company’s lease with respect to its owned and operated Nyack IMAX theater ended and the Company has decided not torenew the lease. In 2013, revenues for the Nyack IMAX theater were $1.3 million (2012 — $1.5 million) and the Company recognized a loss of $0.3 million,net of a tax recovery of $0.2 million (2012 — loss of $0.5 million) from the operation of the theater. The transactions of the Company’s owned and operatedNyack theater are reflected as discontinued operations.Pension PlanThe Company has an unfunded defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”), covering Messrs. Gelfond andBradley J. Wechsler, the Company’s former Co-CEO and current Chairman of its Board of Directors. As at December 31, 2013, the Company had anunfunded and accrued projected benefit obligation of approximately $18.3 million (December 31, 2012 — $20.4 million) in respect of the SERP.The net periodic benefit cost was $0.6 million and $0.6 million in 2013 and 2012, respectively. The components of net periodic benefit cost were asfollows: Years ended December 31 2013 2012 Interest cost $196 $272 Amortization of actuarial loss 444 365 Pension expense $640 $637 The plan experienced an actuarial gain of $2.3 million and a loss of $1.1 million during 2013 and 2012, respectively, resulting primarily from thecontinuing change in the Pension Benefit Guaranty Corporation (“PBGC”) published annuity interest rates year-over-year used to determine the lump sumpayment under the plan.Under the terms of the SERP, if Mr. Gelfond’s employment is terminated other than for cause (as defined in his employment agreement), he is entitled toreceive SERP benefits in the form of a lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six months after the terminationof his employment, at which time Mr. Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short-termobligations. Effective January 1, 2013, the term of Mr. Gelfond’s current employment agreement was extended through December 31, 2016, althoughMr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of the arrangement, no compensation earned beginning in2011 is to be included in calculating this entitlement under the SERP.The Company has a postretirement plan to provide health and welfare benefits to Canadian employees meeting certain eligibility requirements. As atDecember 31, 2013, the Company had an unfunded benefit obligation of $2.3 million (December 31, 2012 — $4.6 million). In 2013, the Company amendedthe Canadian postretirement plan to reduce future benefits provided under the plan. As a result of this change, the Company postretirement liability wasreduced by $2.6 million, resulting in a pre-tax curtailment gain of $2.2 million. See note 21(d) to the audited consolidated financial statements in Item 8 of theCompany’s 2013 Form 10-K for additional information.In July 2000, the Company agreed to maintain health benefits for Messrs. Gelfond and Wechsler upon retirement. As at December 31, 2013, theCompany had an unfunded benefit obligation recorded of $0.4 million (December 31, 2012 — $0.5 million).Stock-Based CompensationThe Company estimates the fair value of stock option and SAR awards on the date of grant using fair value measurement techniques. The fair value ofRSU awards is equal to the closing price of the Company’s common stock on the date of grant.Stock-based compensation expense recognized under FASB ASC 718, “Compensation – Stock Compensation” (“ASC 718”) for 2013 and 2012 was$11.9 million and $13.1 million, respectively. 64Table of ContentsYears Ended December 31, 2012 versus Years Ended December 31, 2011The Company reported net income of $41.3 million or $0.63 per basic share and $0.61 per diluted share for the year ended December 31, 2012 ascompared to net income of $15.3 million or $0.24 per basic share and $0.22 per diluted share for the year ended December 31, 2011. Net income for the yearended December 31, 2012 includes a $13.1 million charge, or $0.19 per diluted share (2011 — $11.7 million or $0.17 per diluted share) for stock-basedcompensation. Net income for December 31, 2011 also includes a one-time $2.1 million pre-tax charge ($0.03 per diluted share) due to an arbitration awardarising from an arbitration proceeding brought against the Company in connection with a discontinued subsidiary. Adjusted net income, which consists of netincome excluding the impact of the stock-based compensation expense, the charge for arbitration award and the related tax impact, was $54.3 million or $0.80per diluted share for the year ended December 31, 2012 as compared to adjusted net income of $28.0 million or $0.41 per diluted share for the year endedDecember 31, 2011. A reconciliation of net income, the most directly comparable U.S. GAAP measure, to adjusted net income and adjusted net income perdiluted share is presented in the table below: Year Ended December 31, 2012 2011 Net Income Diluted EPS Net Income Diluted EPS Reported net income $41,337 $0.61 $15,260 $0.22 Adjustments: Stock-based compensation 13,113 0.19 11,681 0.17 Provision for arbitration award — — 2,055 0.03 Tax impact on items listed above (160) — (973) (0.01)Adjusted net income $54,290 $0.80 $28,023 $0.41 Weighted average diluted shares outstanding 67,933 67,859 Revenues and Gross MarginThe Company’s revenues for the year ended December 31, 2012 increased 20.3% to $282.8 million from $235.1 million in 2011 due in large part toincreases in revenue from the Company’s film and joint revenue sharing arrangement segments, partially offset by lower revenue from the IMAX systemssegment. The gross margin across all segments in 2012 was $153.2 million, or 54.2% of total revenue, compared to $114.1 million, or 48.5% of total revenuein 2011. The increase in gross margin is attributable to improved operating leverage and continued theater network growth.IMAX SystemsIMAX systems revenue decreased 10.5% to $83.4 million in 2012 as compared to $93.2 million in 2011.Revenue from sales and sales-type leases decreased 13.9% to $70.0 million in 2012 from $81.3 million in 2011, resulting primarily from the installationof fewer digital upgrades and slightly fewer systems under sales and sales-type leases as compared to the prior year. The Company recognized revenue on 12digital upgrades and one 3D GT upgrade (from a 2D GT system) in 2012, with a total value of $5.4 million, as compared to 25 digital upgrades in 2011 witha total value of $11.6 million. Digital upgrades have lower sales prices and gross margin than a full theater installation. The Company has decided to offerdigital upgrades at lower selling prices for strategic reasons since the Company believes that digital systems increase flexibility and profitability for theCompany’s existing exhibition customers. The Company recognized revenue on 47 full, new theater systems which qualified as either sales or sales-type leasesin 2012, with a total value of $60.7 million, as compared to 50 in 2011 with a total value of $63.4 million. There were no used systems installed in 2012, ascompared to one used system with a total value of $1.2 million in 2011.Average revenue per full, new sales and sales-type lease system was $1.3 million in 2012, which is consistent with the $1.3 million experienced in 2011.Average revenue per digital upgrade was $0.4 million in 2012, as compared to $0.5 million in 2011. 65Table of ContentsThe breakdown in mix of sales and sales-type lease, operating lease and joint revenue sharing arrangement installations by theater system configurationin 2012 and 2011 is outlined in the table below: 2012 2011 New IMAX xenon-based digital theater systems - installed and recognized Sales and sales-types lease arrangements 47 51(2) Joint revenue sharing arrangement 60 86 Total new theater systems 107 137 IMAX xenon-based digital theater system upgrades - installed and recognized Sales and sales-types lease arrangements 13(1) 25 Joint revenue sharing arrangement 2 — Total upgraded theater systems 15 25 IMAX xenon-based digital theater system upgrades - installed and deferred 3 8 Total theater systems installed 125 170 (1)Includes one upgrade under a sale arrangement from a 2D GT projection system to a 3D projection system(2)Includes one used IMAX 3D GT theater system.As noted in the table above, 3 and 8 theater systems under a digital upgrade sales arrangement were installed in 2012 and 2011, respectively, butrevenue recognition was deferred. The arrangement contained provisions providing the customer with standard digital upgrades, which were installed, and anumber of as-of-yet undeveloped upgrades. The Company’s policy is such that once the fair value for the undeveloped upgrade is established, the Companyallocates total contract consideration, including any upgrade revenues, between the delivered and undelivered elements on a relative fair value basis andrecognizes the revenue allocated to the delivered elements with their associated costs. If the arrangement is materially modified in the future such that contractconsideration becomes fixed, the arrangement in its entirety would be subject to the provisions of the amended ASC 605-25 and the Company would berequired to develop, absent an established selling price or third party evidence of the selling price for the undeveloped specified upgrade, a best estimatedselling price for the undeveloped specified upgrade, allocate the arrangement’s consideration on a relative selling price allocation basis, and recognize revenueon the delivered elements based on that allocation.Revenues from sales and sales-type leases include settlement revenue of $0.7 million in 2012 as compared to $3.8 million in 2011. The amountrecognized in 2012 is a result of agreements entered into with customers to terminate their existing obligations pertaining to a theater in the IMAX network,whereas settlement revenue recognized in 2011 primarily relates to a consensual buyout for one uninstalled theater system.In 2012, one of the Company’s customers acquired 3 IMAX theaters from another existing customer that had been operating under a joint revenuesharing arrangement. These theaters were purchased from IMAX under a sales arrangement. As a result of this sale transaction, the Company recorded revenueand margin of $3.0 million and $2.1 million, respectively. These above-referenced theaters were included in the Company’s 2012 signings total. In addition,during the period the Company recognized the digital upgrade of two theaters under a joint revenue sharing arrangement, which theaters were previouslyoperated under sales/sales-type lease arrangements.Gross margin from IMAX sales and sales-type lease systems (including new, upgrades and settlements) was $37.0 million, or 52.8% in 2012 comparedto $45.3 million, or 55.7% in 2011. Gross margin from full, new sales and sales-type leases, excluding the impact of settlements and upgrades decreased to62.4% in 2012 from 66.0% in 2011. The gross margin on digital upgrades was $1.4 million in 2012 in comparison with $2.6 million in 2011, which is areflection of the number of systems upgraded, the particular systems upgraded and the costs associated with such upgrades in their respective periods. Therewere no used systems installed during 2012, compared to one used system with a gross margin of $0.1 million installed and recognized in 2011. In addition,in 2012, the Company incurred a charge of $1.7 million for equipment to enable certain theaters to elect to exhibit films in either digital or analog format.Furthermore, in 2012, the Company recorded a write-down of certain film-based projector inventories of $0.8 million. No such costs were experienced in 2011.Ongoing rent revenue and finance income increased to $13.4 million in 2012 from $11.9 million in 2011. Gross margin for ongoing rent and financeincome increased to $13.3 million in 2012 from $11.7 million in 2011. Contingent fees included in this caption amounted to $3.0 million and $2.7 million in2012 and 2011, respectively. 66Table of ContentsOther revenue increased to $13.0 million in 2012 compared to $11.4 million in 2011. Other revenue primarily includes revenue generated from theCompany’s owned and operated theaters, camera rentals and after- market sales of projection system parts and 3D glasses.The gross margin on other revenue was $0.5 million higher in 2012 as compared to 2011.Theater System MaintenanceTheater system maintenance revenue increased 15.3% to $28.6 million in 2012 as compared to $24.8 million in 2011. Theater system maintenancegross margin increased to $11.0 million in 2012 from $9.4 million in 2011. The increase in revenue and gross margin, respectively, was primarily due to thelarger theater network. Maintenance revenue continues to grow as the number of theaters in the IMAX network expands. Maintenance margins vary dependingon the mix of theater system configurations in the theater network and the timing and the date(s) of installation and/or service. In 2012, the Company recordeda write-down of $0.1 million for certain service parts inventories as compared to $nil in 2011.Joint Revenue Sharing ArrangementsRevenues from joint revenue sharing arrangements increased 87.0% to $57.5 million in 2012 compared to $30.8 million in 2011. The Company endedthe year with 316 theaters operating under joint revenue sharing arrangements as compared to 257 theaters at the end of 2011, an increase of 23.0%. Theincrease in revenues from joint revenue sharing arrangements was primarily due to the higher per-screen gross box-office realized from the films released tojoint revenue sharing theaters and the increase in the number of theaters in the IMAX theater network from the prior year. During 2012, the Company installed60 full, new theaters under joint revenue sharing arrangements, as compared to 86 full new theaters during 2011.The gross margin from joint revenue sharing arrangements in 2012 increased 111.9% to $37.3 million compared to $17.6 million in 2011. The increasewas primarily due to higher revenues experienced in 2012 compared to 2011, as well as lower advertising, marketing and selling expenses. Included in thecalculation of the 2012 gross margin were certain advertising, marketing, and selling expenses primarily associated with new theater launches of $3.4 million,as compared to $5.4 million for such expenses in 2011 Adjusted gross margin from joint revenue sharing arrangements, which excludes these expenses fromboth periods, was $40.7 million in 2012, compared to $23.0 million in 2011. A reconciliation of gross margin from the joint revenue sharing arrangementsegment, the most directly comparable U.S. GAAP measure, to adjusted gross margin is presented in the table below: (In thousands of U.S. Dollars) 2012 2011 Gross margin from joint revenue sharing arrangements $37,308 $17,605 Add: Advertising, marketing and selling expenses 3,382 5,432 Adjusted gross margin from joint revenue sharing arrangements $40,690 $23,037 FilmThe Company’s total revenues from its three film segments increased 33.7% to $100.2 million in 2012 from $74.9 million in 2011 and the related grossmargin increased 81.4% in 2012 to $53.7 million from $29.6 million in 2011.Film production and IMAX DMR revenues increased 54.3% to $78.1 million in 2012 from $50.6 million in 2011. The increase in film production andIMAX DMR revenues was primarily due to an increase in the number of theaters in the IMAX theater network as well as higher gross box-office from the filmsreleased during the period. Global gross box-office generated by IMAX DMR films increased 48.8% to $620.6 million in 2012 versus $417.2 million in2011. IMAX DMR gross box-office per screen for 2012 averaged $1,153,200 globally, in comparison to $1,069,300 in 2011.Film production and IMAX DMR gross margins more than doubled to $49.4 million, or 63.2% of revenues, from $23.6 million, or 46.6% of revenuesin 2011 largely due to an increase in IMAX DMR revenue coupled with a relatively consistent level of DMR costs as compared to the prior year. 67Table of ContentsIn 2012, gross box-office was generated primarily from the exhibition of 39 films listed below (35 new and 4 carryovers), as compared to 26 (25 newand 1 carryover) films exhibited in 2011: 2012 Films Exhibited 2011 Films ExhibitedHappy Feet Two: An IMAX 3D Experience TRON: Legacy: An IMAX 3D ExperienceMission: Impossible – Ghost Protocol: The IMAX Experience The Green Hornet: An IMAX 3D ExperienceThe Adventures of Tintin: The Secret of the Unicorn: An IMAX 3D Tangled: An IMAX 3D ExperienceExperience Sanctum: An IMAX 3D ExperienceFlying Swords of Dragon Gate: An IMAX 3D Experience I Am Number Four: The IMAX ExperienceUnderworld: Awakening: An IMAX 3D Experience Mars Needs Moms: An IMAX 3D ExperienceJourney 2: The Mysterious Island: An IMAX 3D Experience Sucker Punch: The IMAX ExperienceThe Lorax: An IMAX 3D Experience Fast Five: The IMAX ExperienceJohn Carter: An IMAX 3D Experience Thor: An IMAX 3D ExperienceThe Hunger Games: An IMAX 3D Experience Pirates of the Caribbean: On Stranger Tides: An IMAX 3DWrath of the Titans: An IMAX 3D Experience ExperienceTitanic: An IMAX 3D Experience The Founding of a Party: The IMAX ExperienceHouba! On the Trail of the Marsupilami: The IMAX Experience Kung Fu Panda 2: An IMAX 3D ExperienceBattleship: The IMAX Experience Super 8: The IMAX ExperienceThe Avengers: An IMAX 3D Experience Cars 2: An IMAX 3D ExperienceDark Shadows: The IMAX Experience Transformers: Dark of the Moon: An IMAX 3D ExperienceMen In Black III: An IMAX 3D Experience Harry Potter and the Deathly Hallows Part II: An IMAX 3DPrometheus: An IMAX 3D Experience ExperienceMadagascar 3: Europe’s Most Wanted: An IMAX 3D Experience Final Destination 5: An IMAX 3D ExperienceRock of Ages: The IMAX Experience Cowboys & Aliens : The IMAX ExperienceThe Amazing Spiderman: An IMAX 3D Experience Sector 7: An IMAX 3D ExperienceThe Dark Knight Rises: The IMAX Experience Contagion: The IMAX ExperienceTotal Recall: The IMAX Experience Real Steel: The IMAX ExperienceThe Bourne Legacy: The IMAX Experience Puss in Boots: An IMAX 3D ExperienceIndiana Jones and the Raiders of the Lost Ark: The IMAX Happy Feet Two: An IMAX 3D ExperienceExperience Flying Swords of Dragon Gate: An IMAX 3D ExperienceResident Evil: Retribution: An IMAX 3D Experience Mission: Impossible – Ghost Protocol: The IMAX ExperienceTai Chi 0: An IMAX 3D ExperienceFrankenweenie: An IMAX 3D Experience The Adventures of Tintin: The Secret of the Unicorn: An IMAX 3DExperienceParanormal Activity 4:The IMAX Experience Tai Chi Hero: An IMAX 3D Experience Cloud Atlas: The IMAX Experience Skyfall: The IMAX Experience Cirque du Soleil: Worlds Away: An IMAX 3D Experience The Twilight Saga: Breaking Dawn – Part 2: The IMAX Experience Back to 1942: The IMAX Experience Rise of the Guardians: An IMAX 3D Experience Life of Pi: An IMAX 3D Experience CZ12: An IMAX 3D Experience The Hobbit: An Unexpected Journey: An IMAX 3D Experience Les Misérables: The IMAX Experience 68Table of ContentsFilm distribution revenues decreased 11.5% to $14.2 million in 2012 from $16.1 million in 2011, primarily due to lower box-office performance. In2012, the Company released an original title, To the Arctic 3D; during 2011, the Company released the original film Born To Be Wild 3D. Film post-production revenues decreased 4.0% to $7.9 million in 2012 from $8.2 million in 2011 primarily due to a decrease in third party business.The film distribution margin of $2.4 million in 2012 was lower than the $3.0 million experienced in 2011, primarily due to the decrease in filmdistribution revenues. Film post-production gross margin decreased by $1.0 million due to a decrease in third party business as compared to the prior year.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased to $81.6 million in 2012, as compared to $73.2 million in 2011. The $8.4 million increaseexperienced from the prior year comparative period was largely the result of the following: • a $8.6 million increase in staff-related costs and compensation costs, including increased staffing (resulting in part from increased staffing costsof $3.5 million from the Company’s wholly-owned subsidiary in China) and normal merit increases; • a $3.8 million increase from brand-related advertising and promotion in 2012 as compared to the prior year; and • a $1.4 million increase in the Company’s stock-based compensation.These increases were offset by: • a $2.5 million decrease due to a change in foreign exchange rates. During the year ended December 31, 2012, the Company recorded a foreignexchange gain of $1.2 million for net foreign exchange gains/losses related to the translation of foreign currency denominated monetary assets andliabilities and unhedged foreign currency forward contracts as compared to a loss of $1.3 million recorded in 2011. See note 16(b) of the auditedconsolidated financial statements in Item 8 of the Company’s 2012 Form 10-K for more information; and • a $2.9 million decrease in legal, professional and other general corporate expenditures.Provision for Arbitration AwardDuring 2011, the Company recorded a provision of $2.1 million regarding an award issued in connection with an arbitration proceeding brought againstthe Company. The arbitration related to agreements entered into in 1994 and 1995 by the Company’s former Ridefilm subsidiary, whose business theCompany discontinued through a sale to a third party in March 2001. The award was vacated as the parties entered into a confidential settlement agreement inwhich the parties agreed to dismiss any outstanding disputes among them.Research and DevelopmentResearch and development expenses increased to $11.4 million in 2012 compared to $7.8 million in 2011 and are primarily attributable to thedevelopment of the Company’s new laser-based digital projection system. The Company is developing its next-generation laser projectors, which is expected toprovide greater brightness and clarity, a wider colour gamut and deeper blacks, while consuming less power and lasting longer than existing digital technology,to ensure that the Company continues to provide the highest quality, premier movie-going experience available to consumers. In 2011, the Company announcedthe completion of a deal in which it secured certain exclusive license rights to a portfolio of intellectual property in the digital cinema field owned by Kodak,which supports the Company’s efforts to develop a next-generation laser digital projection system.A high level of research and development is expected to continue in 2013 as the Company continues its efforts to develop its next-generation laser-basedprojection system. In addition, the Company plans to continue research and development activity in the future in other areas considered important to theCompany’s continued commercial success, including further improving the reliability of its projectors, developing and manufacturing more IMAX cameras,enhancing the Company’s 2D and 3D image quality, expanding the applicability of the Company’s digital technology, developing IMAX theater systems’capabilities in both home and live entertainment and further enhancing the IMAX theater and sound system design through the addition of more channels,improvements to the Company’s proprietary tuning system and mastering processes. 69Table of ContentsReceivable Provisions, Net of RecoveriesReceivable provisions, net of recoveries for accounts receivable and financing receivables, amounted to a net provision of $0.5 million in 2012, ascompared to $1.6 million in 2011.The Company’s accounts receivables and financing receivables are subject to credit risk. These receivables are concentrated with the leading theaterexhibitors and studios in the film entertainment industry. To minimize the Company’s credit risk, the Company retains title to underlying theater systemsleased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentially uncollectible amounts.Accordingly, the Company believes it has adequately protected itself against exposures relating to receivables and contractual commitments.Asset Impairments and Other ChargesThe Company recorded an asset impairment charge of $nil, compared to less than $0.1 million in the prior year, against property, plant and equipmentafter the Company assessed the carrying value of certain assets in its theater operations segment in light of their future expected cash flows. The Companyrecognized that the carrying values for the assets exceeded the expected undiscounted future cash flows.In 2012, the Company recognized a $0.2 million other-than-temporary impairment of its available-for-sale investment as the value is not expected torecover based on the length of time and extent to which the market value has been less than cost.In 2012, the Company recorded a less than $0.1 million charge as compared to a $0.4 million charge in the prior year comparative period reflectingassets that no longer meet capitalization requirements as the assets were no longer in use.Interest Income and ExpenseInterest income was $0.1 million in 2012, as compared to less than $0.1 million in 2011.Interest expense decreased to $0.7 million in 2012, as compared to $1.8 million in 2011. Consistent with its historical financial reporting, the Companyhas elected to classify interest and penalties related to income tax liabilities, when applicable, as part of the interest expense in its consolidated statements ofoperations rather than income tax expense. The Company recovered approximately $0.8 million and expensed $0.1 million in potential interest and penaltiesassociated with its provision for uncertain tax positions for the years ended December 31, 2012 and December 31, 2011, respectively. Also included in interestexpense is the amortization of deferred finance costs in the amount of $0.2 million and $0.4 million in 2012 and 2011, respectively. The Company’s policy isto defer and amortize all the costs relating to debt financing which are paid directly to the debt provider, over the life of the debt instrument.Income TaxesThe Company’s effective tax rate differs from the statutory tax rate and varies from year to year primarily as a result of numerous permanentdifferences, investment and other tax credits, the provision for income taxes at different rates in foreign and other provincial jurisdictions, enacted statutory taxrate increases or reductions in the year, changes due to foreign exchange, changes in the Company’s valuation allowance based on the Company’srecoverability assessments of deferred tax assets, and favorable or unfavorable resolution of various tax examinations.Due to a change in enacted tax rates, the Company recorded an increase to deferred tax assets and a decrease to the deferred tax provision of $0.5 millionin the year ended December 31, 2012. In 2012, there was an overall $0.1 million decrease, of which less than $0.1 million increase was included in theprovision and a $0.2 million decrease was included in the loss from discontinued operations. The Company’s estimates of the recoverability of its deferred taxassets are based on an analysis of both positive and negative evidence including projected future earnings. In 2011, the Company recorded an overall $1.9million decrease in the valuation allowance, of which $1.5 million was recorded through the provision and $0.6 million was included in shareholders’ equityand a $0.2 million increase was recorded in the loss from discontinued operations, resulting from the utilization of loss carryforwards and deductibletemporary differences against income in the prior year comparative period. The Company recorded an income tax provision of $15.1 million for 2012, ofwhich $0.8 million is related to a decrease in its provision for uncertain tax positions. For 2011, the Company recorded an income tax provision of $9.3million, of which $0.1 million was related to a decrease in is provision for uncertain tax positions. 70Table of ContentsDuring the year ended December 31, 2012, after considering all available evidence, both positive (including recent profits, projected future profitability,backlog, carryforward periods for utilization of net operating loss carryovers and tax credits, discretionary deductions and other factors) and negative(including cumulative losses in past years and other factors), it was concluded that the valuation allowance against the Company’s deferred tax assets shouldbe increased by approximately $0.1 million. The remaining $6.1 million balance in the valuation allowance as at December 31, 2012 is primarily attributableto certain U.S. federal and state net operating loss carryovers and federal tax credits that likely will expire without being utilized.The Company anticipates utilizing the majority of its currently-available tax attributes over the next two years.Equity-Accounted InvestmentsThe Company accounts for investments in new business ventures using the guidance of the FASB ASC 323. December 31, 2012, the equity method ofaccounting is being utilized for an investment with a carrying value of $3.0 million (December 31, 2011- $4.1 million). For the year ended December 31, 2012,gross revenues, cost of revenue and net loss for the investment were $9.0 million, $12.7 million and $13.4 million, respectively (2011 — $2.3 million, $9.8million and $17.7 million, respectively). The Company recorded its proportionate share of the net loss which amounted to $1.4 million for 2012 compared to$1.8 million in 2011.Discontinued OperationsOn January 30, 2014, the Company’s lease with respect to its owned and operated Nyack IMAX theater ended and the Company has decided not torenew the respective lease. In 2012, revenues for the Nyack IMAX theater were $1.5 million (2011 — $1.5 million) and the Company recognized a loss of$0.5 million (2011 — loss of $0.9 million) from the operation of the theater. The transactions of the Company’s owned and operated Nyack theater arereflected as discontinued operations.Pension PlanThe Company has an unfunded defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”), covering Messrs. Gelfond andBradley J. Wechsler, the Company’s former Co-CEO and current Chairman of its Board of Directors. As at December 31, 2012, the Company had anunfunded and accrued projected benefit obligation of approximately $20.4 million (December 31, 2011 — $19.0 million) in respect of the SERP.The net periodic benefit cost was $0.6 million and $0.5 million in 2012 and 2011, respectively. The components of net periodic benefit cost were asfollows: Years ended December 31 2012 2011 Interest cost $272 $279 Amortization of actuarial loss 365 214 Pension expense $637 $493 The plan experienced an actuarial loss of $1.1 million and $0.6 million during 2012 and 2011, respectively, resulting primarily from the continuingdecrease in the Pension Benefit Guaranty Corporation (“PBGC”) published annuity interest rates year-over-year used to determine the lump sum paymentunder the plan.Under the terms of the SERP, if Mr. Gelfond’s employment is terminated other than for cause, he is entitled to receive SERP benefits in the form of alump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six months after the termination of his employment, at which timeMr. Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short-term obligations.The Company has a postretirement plan to provide health and welfare benefits to Canadian employees meeting certain eligibility requirements. As atDecember 31, 2012, the Company had an unfunded benefit obligation of $4.6 million (December 31, 2011 — $4.1 million).In July 2000, the Company agreed to maintain health benefits for Messrs. Gelfond and Wechsler upon retirement. As at December 31, 2012, theCompany had an unfunded benefit obligation recorded of $0.5 million (December 31, 2011 — $0.5 million). 71Table of ContentsStock-Based CompensationThe Company utilizes the Binomial Model to determine the fair value of stock-based payment awards. The fair value determined by the Binomial Modelis affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, butare not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercisebehaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exercise price to grant price at which exercises areexpected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictionsand are fully transferable. Because the Company’s employee stock options and SARs have certain characteristics that are significantly different from tradedoptions, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the Binomial Model bestprovides an accurate measure of the fair value of the Company’s employee stock options and SARs. Although the fair value of employee stock options andSARs are determined in accordance with the Equity topic of the FASB ASC using an option-pricing model, that value may not be indicative of the fair valueobserved in a willing buyer/willing seller market transaction.Stock-based compensation expense recognized under FASB ASC 718, “Compensation – Stock Compensation” (“ASC 718”) for 2012 and 2011 was$13.1 million and $11.9 million, respectively. 72Table of ContentsLIQUIDITY AND CAPITAL RESOURCESCredit FacilityOn February 7, 2013, the Company amended and restated the terms of its existing senior secured credit facility (the “Prior Credit Facility”). Theamended and restated facility (the “Credit Facility”), with a scheduled maturity of February 7, 2018, has a maximum borrowing capacity of $200.0 million.The Prior Credit Facility had a maximum borrowing capacity of $110.0 million. Certain of the Company’s subsidiaries serve as guarantors (the“Guarantors”) of the Company’s obligations under the Credit Facility. The Credit Facility is collateralized by a first priority security interest in substantiallyall of the present and future assets of the Company and the Guarantors.The Company’s indebtedness under the Credit Facility includes the following: December 31, December 31, 2013 2012 Revolving Loan $— $11,000 Total amounts drawn and available under the Credit Facility at December 31, 2013 were $nil and $200.0 million (December 31, 2012 – $11.0 millionand $99.0 million).The terms of the Credit Facility are set forth in the Third Amended and Restated Credit Agreement (the “Credit Agreement”), dated February 7, 2013,among the Company, the Guarantors, the lenders named therein, Wells Fargo Bank, National Association (“Wells Fargo”), as agent and issuing lender (WellsFargo, together with the lenders named therein, the “Lenders”) and Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner and in variouscollateral and security documents entered into by the Company and the Guarantors. Each of the Guarantors has also entered into a guarantee in respect of theCompany’s obligations under the Credit Facility.The Credit Facility permits the Company to undertake up to $150.0 million in stock buybacks and dividends, provided certain covenants in the CreditAgreement are maintained. In the event that the Company undertakes stock buybacks or makes dividend payments, any amounts outstanding under therevolving portion of the Credit Facility up to the first $75.0 million of any such stock buybacks and dividend payments will be converted to a term loan.The amounts outstanding under the Credit Facility bear interest, at the Company’s option, at (i) LIBOR plus a margin of (a) 1.50%, 1.75% or 2.00%depending on the Company’s Total Leverage Ratio (as defined in the Credit Agreement) per annum, or (ii) Wells Fargo’s prime rate plus a margin of 0.50% perannum. In addition, the Company is obligated to pay a Commitment Fee (as defined in the Credit Agreement) per annum of between 0.25% and 0.50% of theunused portion of the Credit Facility, depending on the Company’s Total Leverage Ratio. Term loans, if any, under the Credit Facility must be repaid under a5-year straight line amortization, with a balloon payment due at maturity. The Company is required to provide an interest rate hedge for 50% of any term loansoutstanding after January 1, 2015. Under the Credit Facility, the effective interest rate for the year ended December 31, 2013 for the revolving term loan portionwas 2.41% (2012 – 2.42%).The Credit Facility provides that the Company will be required to maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of notless than 1.1:1. The Company will also be required to maintain minimum EBITDA (as defined in the Credit Agreement) of $80.0 million on December 31,2013, which increases to $90.0 million on December 31, 2014, and $100.0 million on December 31, 2015. The Company must also maintain a MaximumTotal Leverage Ratio (as defined in the Credit Agreement) of 2.25:1 on December 31, 2013, which requirement decreases to 2.0:1 on December 31, 2014, and1.75:1 on December 31, 2015. The Company was in compliance with all of these requirements at December 31, 2013. The ratio of total debt to EBITDA wasnil:1 as at December 31, 2013, where Total Debt (as defined in the Credit Agreement) is the sum of all obligations evidenced by notes, bonds, debentures orsimilar instruments and was $nil. EBITDA is calculated as follows: EBITDA per Credit Facility: (In thousands of U.S. Dollars) Net income $44,115 Add: Loss from equity accounted investments 2,757 Provision for income taxes(1) 16,470 Interest expense, net of interest income 1,290 Depreciation and amortization, including film asset amortization(2) 36,685 Write-downs, net of recoveries including receivable provisions(2) 1,336 Stock and other non-cash compensation 12,685 Gain on curtailment of postretirement benefits (2,185) $113,153 (1)Includes a tax recovery in discontinued operations of $0.2 million.(2)See note 18 to the audited consolidated financial statements in Item 8 of the Company’s 2013 Form 10-K. 73Table of ContentsThe Credit Facility contains typical affirmative and negative covenants, including covenants that limit or restrict the ability of the Company and theguarantors to: incur certain additional indebtedness; make certain loans, investments or guarantees; pay dividends; make certain asset sales; incur certainliens or other encumbrances; conduct certain transactions with affiliates and enter into certain corporate transactions.The Credit Facility also contains customary events of default, including upon an acquisition or change of control or upon a change in the business andassets of the Company or a Guarantor that in each case is reasonably expected to have a material adverse effect on the Company or a guarantor. If an event ofdefault occurs and is continuing under the Credit Facility, the Lenders may, among other things, terminate their commitments and require immediaterepayment of all amounts owed by the Company.Letters of Credit and Other CommitmentsAs at December 31, 2013, the Company did not have any letters of credit and advance payment guarantees outstanding (December 31, 2012 — $nil),under the Credit Facility.The Company also has a $10.0 million facility for advance payment guarantees and letters of credit through the Bank of Montreal for use solely inconjunction with guarantees fully insured by EDC (the “Bank of Montreal Facility”). The Bank of Montreal Facility is unsecured and includes typicalaffirmative and negative covenants, including delivery of annual consolidated financial statements within 120 days of the end of the fiscal year. The Bank ofMontreal Facility is subject to periodic annual reviews. As at December 31, 2013, the Company had letters of credit and advance payment guaranteesoutstanding of $0.3 million under the Bank of Montreal Facility as compared to $0.9 million as at December 31, 2012.Cash and Cash EquivalentsAs at December 31, 2013, the Company’s principal sources of liquidity included cash and cash equivalents of $29.5 million, the Credit Facility,anticipated collection from trade accounts receivable of $73.1 million including receivables from theaters under joint revenue sharing arrangements and DMRagreements with studios, anticipated collection from financing receivables due in the next 12 months of $19.8 million and payments expected in the next 12months on existing backlog deals. As at December 31, 2013, the Company did not have any amount drawn on the Credit Facility (with remaining availabilityof $200.0 million). There were $nil letters of credit and advance payment guarantees outstanding under the Credit Facility and $0.3 million under the Bank ofMontreal Facility.During the year ended December 31, 2013, the Company’s operations provided cash of $55.0 million and the Company used cash of $38.3 million tofund capital expenditures, principally to build equipment for use in joint revenue sharing arrangements, to purchase other intangible assets, including costs todevelop the Company’s new enterprise resource planning (“ERP”) system, and to purchase property, plant and equipment. Based on management’s currentoperating plan for 2014, the Company expects to continue to use cash to deploy additional theater systems under joint revenue sharing arrangements and tofund DMR agreements with studios. Cash flows from joint revenue sharing arrangements are derived from the theater box-office receipts and concessionrevenues and the Company invested directly in the roll out of 65 new theater systems under joint revenue sharing arrangements in 2013. 74Table of ContentsThe Company believes that cash flow from operations together with existing cash and borrowing available under the Credit Facility will be sufficient tofund the Company’s business operations, including its strategic initiatives relating to existing joint revenue sharing arrangements for the next 12 months.The Company’s operating cash flow will be adversely affected if management’s projections of future signings for theater systems and film performance,theater installations and film productions are not realized. Since the Company’s future cash flows are based on estimates and there may be factors that areoutside of the Company’s control (see “Risk Factors” in Item 1A in the Company’s 2013 Form 10-K), there is no guarantee that the Company will continue tobe able to fund its operations through cash flows from operations. Under the terms of the Company’s typical sale and sales-type lease agreement, the Companyreceives substantial cash payments before the Company completes the performance of its obligations. Similarly, the Company receives cash payments forsome of its film productions in advance of related cash expenditures.Operating ActivitiesThe Company’s net cash provided by operating activities is affected by a number of factors, including the proceeds associated with new signings oftheater system lease and sale agreements in the year, costs associated with contributing systems under joint revenue sharing arrangements, the box-officeperformance of films distributed by the Company and/or released to IMAX theaters, increases or decreases in the Company’s operating expenses, includingresearch and development, and the level of cash collections received from its customers.Cash provided by operating activities amounted to $55.0 million in 2013. Changes in other non-cash operating assets as compared to 2012 include: anincrease of $31.0 million in accounts receivable; an increase of $13.4 million in financing receivables; a decrease of $1.9 million in inventories; a decrease of$0.2 million in prepaid expenses; and a $0.4 million decrease in insurance recoveries receivable and a $0.1 million decrease in commissions and other deferredselling expenses offset by a $0.3 million increase in other assets. Changes in other operating liabilities as compared to December 31, 2012 include: an increasein deferred revenue of $2.5 million related to backlog payments received in the current year, offset partially by amounts relieved from deferred revenue relatedto theater system installations; an increase in accounts payable of $7.2 million; and a decrease of $1.3 million in accrued liabilities which is net of $2.4million for stock-based compensation payments in the year.Investing ActivitiesNet cash used in investing activities amounted to $42.3 million in 2013, which includes an investment in joint revenue sharing equipment of$22.8 million, purchases of $13.0 million in property, plant and equipment, an investment in new business ventures of $4.0 million and an increase in otherintangible assets of $2.5 million. Net cash used in investment activities amounted to $35.5 million in 2012.Financing ActivitiesNet cash used in financing activities in 2013, amounted to $4.4 million as compared to $34.8 million in 2012, which includes net bank indebtednessrepayments of $11.0 million, fees paid of $2.2 million relating to the Credit Facility amendment and $0.2 million in share issuance expenses. These paymentswere offset by proceeds from the issuance of common shares resulting from stock option exercises of $9.0 million.Capital ExpendituresCapital expenditures, including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment, net of salesproceeds, other intangible assets and investments in film assets were $59.2 million in 2013 as compared to $52.0 million in 2012. In 2014 the Companyanticipates continued capital expenditures due in large part to the roll-out of theaters pursuant to joint revenue sharing arrangements. The Company anticipatesa higher level of capital expenditures in 2014 primarily as a result of the Company’s purchase of land and construction of its new facility in Playa Vista. Asignificant portion of the Playa Vista project is expected to be financed through a construction loan and related facility, which will offset the cash outlayassociated with the project. See “Properties” in Item 2 in the Company’s 2013 Form 10-K.Prior Year Cash Flow ActivitiesNet cash provided by operating activities amounted to $73.6 million in the year ended December 31, 2012. Changes in other non-cash operating assetsas compared to 2011 include: an increase of $7.3 million in financing receivables; a decrease of $4.1 million in accounts receivable; an increase of $0.4million in inventories; an increase of $0.7 million in prepaid expenses; and a $0.1 million increase in other assets which includes a $0.4 million decrease ininsurance recoveries receivable, a $0.3 million decrease in 75Table of Contentscommissions and other deferred selling expenses and a $0.8 million decrease in other assets. Changes in other operating liabilities as compared toDecember 31, 2011 include: a decrease in deferred revenue of $0.5 million related to backlog payments received in the current year, offset by amounts relievedfrom deferred revenue related to theater system installations; a decrease in accounts payable of $8.1 million; and a decrease of $2.3 million in accruedliabilities.Net cash used in investing activities in the year ended December 31, 2012 amounted to $35.5 million, which includes an investment in joint revenuesharing equipment of $23.3 million, purchases of $6.1 million in property, plant and equipment, an additional investment in business ventures of $0.4million and an increase in other intangible assets of $5.8 million. Net cash used in financing activities in 2012 amounted to $34.8 million, primarily due tothe net repayment of bank indebtedness of $44.0 million.Capital expenditures including the Company’s investment in joint revenue sharing equipment, purchase of property, plant and equipment net of salesproceeds and investments in film assets were $52.0 million in the year ended December 31, 2012.CONTRACTUAL OBLIGATIONSPayments to be made by the Company under contractual obligations are as follows: Payments Due by Period (In thousands of U.S. Dollars) TotalObligations 2014 2015 2016 2017 2018 Thereafter Pension obligations(1) $19,228 $— $— $— $19,228 $— $— Credit Facility(2) — — — — — — — Operating lease obligations(3) 10,066 6,454 1,537 695 533 533 314 Purchase obligations(4) 11,834 11,829 2 3 — — — Postretirement benefits obligations(5) 2,737 99 114 127 143 154 2,100 Capital lease obligations(6) 2 2 — — — — — $43,867 $18,384 $1,653 $825 $19,904 $687 $2,414 (1)The SERP assumptions are that Mr. Gelfond will receive a lump sum payment six months after retirement at the end of the current term of hisemployment agreement (December 31, 2016), although Mr. Gelfond has not informed the Company that he intends to retire at that time.(2)Interest on the Credit Facility is payable quarterly in arrears based on the applicable variable rate and is not included above.(3)The Company’s total minimum annual rental payments to be made under operating leases, mostly consisting of rent at the Company’s properties inNew York and Santa Monica, and at the various owned and operated theaters.(4)The Company’s total payments to be made under binding commitments with suppliers and outstanding payments to be made for supplies ordered butyet to be invoiced.(5)In 2013, the Company amended the Canadian postretirement plan to reduce future benefits provided under the plan. As a result of this change, theCompany’s postretirement liability was reduced by $2.6 million, resulting in a pre-tax curtailment gain in 2013 of $2.2 million.(6)The Company’s total minimum annual payments to be made under capital leases, mostly consisting of payments for IT hardware and various otherfixed assets. 76Table of ContentsPension and Postretirement ObligationsThe Company has an unfunded defined benefit pension plan, the SERP, covering Messrs. Gelfond and Wechsler. As at December 31, 2013, theCompany had an unfunded and accrued projected benefit obligation of approximately $18.3 million (December 31, 2012 — $20.4 million) in respect of theSERP.On August 1, 2010, the Company made a lump sum payment to Mr. Wechsler in accordance with the terms of the plan, representing a settlement ofMr. Wechsler’s entitlement under the SERP. Under the terms of the SERP, if Mr. Gelfond’s employment is terminated other than for cause, he is entitled toreceive SERP benefits in the form of a lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six months after the terminationof his employment, at which time Mr. Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short-termobligations. Effective January 1, 2013, the term of Mr. Gelfond’s current employment agreement was extended through December 31, 2016, althoughMr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of the arrangement, no compensation earned beginning in2011 is to be included in calculating his entitlement under the SERP.The Company has a postretirement plan to provide health and welfare benefits to Canadian employees meeting certain eligibility requirements. As atDecember 31, 2013, the Company had an unfunded benefit obligation of $2.1 million (December 31, 2012 — $4.6 million). In 2013, the Company amendedthe Canadian postretirement plan to reduce future benefits provided under the plan. As a result of this change, the Company’s postretirement liability wasreduced by $2.6 million, resulting in a pre-tax curtailment gain of $2.2 million. See note 21(d) in Item 8 of the audited consolidated financial statements in theCompany’s 2013 Form 10-K for additional details.In July 2000, the Company agreed to maintain health benefits for Messrs. Gelfond and Wechsler upon retirement. As at December 31, 2013, theCompany had an unfunded benefit obligation of $0.4 million (December 31, 2012 — $0.5 million).OFF-BALANCE SHEET ARRANGEMENTSThere are currently no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Company’sfinancial condition. Item 7A.Quantitative and Qualitative Factors about Market RiskThe Company is exposed to market risk from foreign currency exchange rates and interest rates, which could affect operating results, financial positionand cash flows. Market risk is the potential change in an instrument’s value caused by, for example, fluctuations in interest and currency exchange rates. TheCompany’s primary market risk exposure is the risk of unfavorable movements in exchange rates between the U.S. dollar, the Canadian dollar and theChinese Yuan Renminbi. The Company does not use financial instruments for trading or other speculative purposes.Foreign Exchange Rate RiskA majority of the Company’s revenue is denominated in U.S. dollars while a significant portion of its costs and expenses is denominated in Canadiandollars. A portion of the Company’s net U.S. dollar cash flows is converted to Canadian dollars to fund Canadian dollar expenses through the spot market.The Company has incoming cash flows from its revenue generating theaters and ongoing operating expenses in China through its wholly-owned subsidiaryIMAX Shanghai Multimedia Technology Co., Ltd. In Japan, the Company has ongoing Yen-denominated operating expenses related to its Japanese operations.Net Renminbi and Japanese Yen cash flows are converted to U.S. dollars through the spot market. The Company also has cash receipts under leasesdenominated in Japanese Yen, Euros and Canadian dollars.The Company manages its exposure to foreign exchange rate risks through the Company’s regular operating and financing activities and, whenappropriate, through the use of derivative financial instruments. These derivative financial instruments are utilized to hedge economic exposures as well asreduce earnings and cash flow volatility resulting from shifts in market rates.For the year ended December 31, 2013, the Company recorded a foreign exchange net loss of $0.7 million as compared with a foreign exchange net gainof $1.2 million in 2012, associated with the translation of foreign currency denominated monetary assets and liabilities and unhedged foreign exchangecontracts. 77Table of ContentsThe Company entered into a series of foreign currency forward contracts to manage the Company’s risks associated with the volatility of foreigncurrencies. The forward contract have settlement dates throughout 2014. In addition, at December 31, 2013, the Company held foreign currency forwardcontracts to manage foreign currency risk on future anticipated Canadian dollar expenditures that were not considered foreign currency hedges by theCompany. Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) arerecognized in the consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreigncurrency hedging instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income andreclassified to the consolidated statement of operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in theconsolidated statement of operations. The notional value of foreign currency hedging instruments at December 31, 2013 was $23.6 million (December 31,2012 — $8.1 million). A loss of $1.0 million was recorded to Other Comprehensive Income with respect to the depreciation/appreciation in the value of thesecontracts in 2013 (2012 — gain of $0.7 million). A loss of $0.3 million was reclassified from Accumulated Other Comprehensive Income to selling, generaland administrative expenses in 2013 (2012 — gain of $0.2 million). Appreciation or depreciation on forward contracts not meeting the requirements for hedgeaccounting in the Derivatives and Hedging Topic of the FASB Accounting Standards Codification are recorded to selling, general and administrative expenses.For all derivative instruments, the Company is subject to counterparty credit risk to the extent that the counterparty may not meet its obligations to theCompany. To manage this risk, the Company enters into derivative transactions only with major financial institutions.At December 31, 2013, the Company’s financing receivables and working capital items denominated in Canadian dollars, Renminbi, Yen and Euroswas $30.2 million. Assuming a 10% appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates atDecember 31, 2013, the potential change in the fair value of foreign currency-denominated financing receivables and working capital items would have been$3.0 million. A significant portion of the Company’s selling, general, and administrative expenses is denominated in Canadian dollars. Assuming a 1%change appreciation or depreciation in foreign currency exchange rates at December 31, 2013, the potential change in the amount of selling, general, andadministrative expenses would be $0.1 million for every $10.0 million in Canadian denominated expenditures.Interest Rate Risk ManagementThe Company’s earnings are also affected by changes in interest rates due to the impact those changes have on its interest income from cash, and itsinterest expense from variable-rate borrowings under the Credit Facility.As at December 31, 2013, the Company borrowings under the Credit Facility were $nil (December 31, 2012 — $11.0 million).The Company’s largest exposure with respect to variable rate debt comes from changes in LIBOR. The Company had variable rate debt instrumentsrepresenting approximately 6.5% of its total liabilities as at December 31, 2012. No such comparative is available for 2013 as the Company did not have anyvariable rate debt instruments as at December 31, 2013. If interest rates available to the Company increased by 10%, the Company’s interest expense wouldincrease by approximately less than $0.1 million and interest income from cash would increase by approximately less than $0.1 million. These amounts aredetermined by considering the impact of the hypothetical interest rates on the Company’s cash balances at December 31, 2013. 78Table of ContentsItem 8.Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 80 Consolidated Balance Sheets as at December 31, 2013 and 2012 81 Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011 82 Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011 83 Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011 84 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2013, 2012 and 2011 85 Notes to Consolidated Financial Statements 86 ************ 79Table of ContentsReport of Independent Registered Public Accounting FirmTo the Shareholders of IMAX Corporation:We have audited the accompanying consolidated balance sheets of IMAX Corporation and its subsidiaries as of December 31, 2013 and December 31,2012 and the related consolidated statements of operations, comprehensive income, cash flows and shareholders’ equity for each of the years in the three-yearperiod ended December 31, 2013. In addition, we have audited the financial statements schedule listed in the index appearing under item 15 (a) (2). We alsohave audited IMAX Corporation’s and its subsidiaries’ internal control over financial reporting as of December 31, 2013 based on criteria established inInternal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management isresponsible for these consolidated financial statements and financial statement schedule, for maintaining effective internal control over financial reporting andfor its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control overFinancial Reporting under Item 9A of its 2013 Annual Report on Form 10-k. Our responsibility is to express an opinion on these consolidated financialstatements, the financial statements schedule and the company’s internal control over financial reporting based on our integrated audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements and the financial statementschedule are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits ofthe consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financialstatements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financialstatement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessedrisk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide areasonable basis for our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Becauseof its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IMAX Corporationand its subsidiaries as of December 31, 2013 and December 31, 2012 and the results of its operations and its cash flows for each of the years in the three-yearperiod ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, thefinancial statements schedule listed in the index presents fairly, in all material respects, the information set forth therein when read in conjunction with therelated consolidated financial statements. Also, in our opinion, IMAX Corporation and its subsidiaries maintained, in all material respects, effective internalcontrol over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by COSO./s/ PricewaterhouseCoopers LLPChartered Professional Accountants, Licensed Public AccountantsToronto, OntarioFebruary 20, 2014 80Table of ContentsIMAX CORPORATIONCONSOLIDATED BALANCE SHEETSIn accordance with United States Generally Accepted Accounting Principles(In thousands of U.S. dollars) As at December 31, 2013 2012 Assets Cash and cash equivalents $29,546 $21,336 Accounts receivable, net of allowance for doubtful accounts of $887 (December 31, 2012 — $1,564) 73,074 42,007 Financing receivables (notes 4 and 20(c)) 107,110 94,193 Inventories (note 5) 9,825 15,794 Prepaid expenses 3,602 3,833 Film assets (note 6) 7,076 3,737 Property, plant and equipment (note 7) 132,847 113,610 Other assets (notes 8, 20(d) and 20(e)) 27,034 23,963 Deferred income taxes (note 9) 24,259 36,461 Goodwill 39,027 39,027 Other intangible assets (note 10) 27,745 27,911 Total assets (note 22(c)) $481,145 $421,872 Liabilities Bank indebtedness (note 11) $— $11,000 Accounts payable 19,396 15,144 Accrued and other liabilities (notes 6, 12(a), 12(c), 13, 14(c), 20(b), 20(d), 21, and 23) 65,232 68,695 Deferred revenue 76,932 73,954 Total liabilities (note 22(c)) 161,560 168,793 Commitments and contingencies (notes 12 and 13) Shareholders’ equity Capital stock (note 14) common shares — no par value. Authorized — unlimited number. Issued and outstanding — 67,841,233 (December 31, 2012 — 66,482,425) 327,313 313,744 Other equity 36,452 28,892 Deficit (43,051) (87,166) Accumulated other comprehensive loss (1,129) (2,391) Total shareholders’ equity 319,585 253,079 Total liabilities and shareholders’ equity $481,145 $421,872 (the accompanying notes are an integral part of these consolidated financial statements) 81Table of ContentsIMAX CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONSIn accordance with United States Generally Accepted Accounting Principles(In thousands of U.S. dollars, except per share amounts) Years Ended December 31, 2013 2012 2011 Revenues Equipment and product sales $78,663 $78,161 $85,016 Services (note 15(c)) 139,464 135,071 105,262 Rentals (note 15(c)) 61,293 61,268 34,810 Finance income 8,142 7,523 6,162 Other (note 15(a)) 375 732 3,848 287,937 282,755 235,098 Costs and expenses applicable to revenues (note 2(m)) Equipment and product sales 37,517 37,538 38,742 Services (note 15(c)) 68,844 70,570 66,972 Rentals 16,973 21,402 14,301 Other — — 1,018 123,334 129,510 121,033 Gross margin 164,603 153,245 114,065 Selling, general and administrative expenses (note 15(b)) (including share-based compensation expense of$11.9 million, $13.1 million and $11.7 million for 2013, 2012, 2011, respectively) 82,669 81,560 73,157 Provision for arbitration award — — 2,055 Research and development 14,771 11,411 7,829 Amortization of intangibles 1,618 706 465 Receivable provisions, net of recoveries (note 16) 445 524 1,570 Asset impairments (note 17) — — 20 Impairment of available-for-sale investment — 150 — Income from operations 65,100 58,894 28,969 Interest income 55 85 57 Interest expense (note 9(g)) (1,345) (689) (1,827) Income from operations before income taxes 63,810 58,290 27,199 Provision for income taxes (16,629) (15,079) (9,293) Loss from equity-accounted investments (2,757) (1,362) (1,791) Income from continuing operations 44,424 41,849 16,115 Net loss from discontinued operations (note 22) (309) (512) (855) Net income $44,115 $41,337 $15,260 Net income per share - basic and diluted: (note 14(d)) Net income per share - basic: Net income per share from continuing operations $0.66 $0.64 $0.25 Net loss per share from discontinued operations — (0.01) (0.01) $0.66 $0.63 $0.24 Net income per share - diluted: Net income per share from continuing operations $0.64 $0.62 $0.23 Net loss per share from discontinued operations — (0.01) (0.01) $0.64 $0.61 $0.22 (the accompanying notes are an integral part of these consolidated financial statements) 82Table of ContentsIMAX CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEIn accordance with United States Generally Accepted Accounting Principles(In thousands of U.S. dollars) Years Ended December 31, 2013 2012 2011 Net income $ 44,115 $ 41,337 $ 15,260 Unrealized defined benefit plan actuarial gain (loss) (note 21(a)) 2,277 (1,104) (603) Amortization of defined benefit plan actuarial loss (note 21(a)) 444 365 214 Unrealized postretirement benefit plans actuarial loss (notes 21(c) and 21(d)) (169) (129) (234) Gain on curtailment of postretirement benefit plan (note 21(d)) 398 — — Unrealized net (loss) gain from cash flow hedging instruments (note 20(d)) (1,031) 716 (162) Realization of cash flow hedging net loss (gain) upon settlement (note 20(d)) 312 (236) (684) Foreign currency translation adjustments (note 2) (115) — — Change in market value of available-for-sale investment (note 20(b)) (350) 338 (488) Other-than-temporary impairment of available-for-sale investment (note 20(b)) — 150 — Other comprehensive income (loss), before tax: 1,766 100 (1,957) Income tax (expense) recovery related to other comprehensive income (loss) (note 9(h)) (504) 43 446 Comprehensive income $45,377 $41,480 $13,749 (the accompanying notes are an integral part of these consolidated financial statements) 83Table of ContentsIMAX CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWSIn accordance with United States Generally Accepted Accounting Principles(In thousands of U.S. dollars) Years Ended December 31, 2013 2012 2011 Cash provided by (used in): Operating Activities Net income $44,115 $41,337 $15,260 Net loss from discontinued operations (note 22) 309 512 855 Adjustments to reconcile net income to cash from operations: Depreciation and amortization (notes 18(c) and 19(a)) 37,172 32,788 25,163 Write-downs, net of recoveries (notes 18(d) and 19(a)) 1,336 1,607 1,946 Change in deferred income taxes 12,899 14,724 7,994 Stock and other non-cash compensation 12,685 14,220 12,814 Provision for arbitration award — — 2,055 Unrealized foreign currency exchange loss (gain) 1,183 (329) 1,255 Gain on curtailment of postretirement benefits (note 21(d)) (2,185) — — Loss from equity-accounted investments 2,757 1,362 1,791 Gain on non-cash contribution to equity-accounted investees — — (404) Investment in film assets (20,935) (16,817) (12,256) Changes in other non-cash operating assets and liabilities (note 18(a)) (33,755) (15,262) (49,379) Net cash used in operating activities from discontinued operations (548) (512) (847) Net cash provided by operating activities 55,033 73,630 6,247 Investing Activities Purchase of property, plant and equipment (13,016) (6,055) (5,528) Investment in joint revenue sharing equipment (22,775) (23,257) (33,290) Investment in new business ventures (4,000) (381) (2,483) Acquisition of other intangible assets (2,486) (5,826) (22,206) Net cash used in investing activities (42,277) (35,519) (63,507) Financing Activities Increase in bank indebtedness (note 11) 12,000 9,917 75,083 Repayment of bank indebtedness (note 11) (23,000) (54,000) (37,500) Common shares issued - stock options exercised (note 14(b)) 8,970 8,920 7,864 Proceeds from disgorgement of stock sale profits — 314 — Credit facility amendment fees paid (2,151) — (306) Share issuance expenses (202) — — Net cash (used in) provided by financing activities (4,383) (34,849) 45,141 Effects of exchange rate changes on cash (163) (64) (133) Increase (decrease) in cash and cash equivalents during year 8,210 3,198 (12,252) Cash and cash equivalents, beginning of year 21,336 18,138 30,390 Cash and cash equivalents, end of year $29,546 $21,336 $18,138 (the accompanying notes are an integral part of these consolidated financial statements) 84Table of ContentsIMAX CORPORATIONCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYIn accordance with United States Generally Accepted Accounting Principles(In thousands of U.S. dollars) CommonShares IssuedandOutstanding CapitalStock OtherEquity Deficit AccumulatedOtherComprehensiveIncome (Loss) TotalShareholders’Equity Balance as at December 31, 2010 64,145,573 $ 292,977 $7,687 $(143,763) $(1,023) $ 155,878 Net income — — — 15,260 — 15,260 Other comprehensive loss, before tax — — — — (1,957) (1,957) Income tax recovery related to other comprehensive loss (note 9(h)) — — — — 446 446 Paid-in capital for non-employee stock options granted (note 14(c)) — — 2,375 — — 2,375 Employee stock options exercised 763,056 5,173 (731) — — 4,442 Non-employee stock options exercised 144,111 5,245 (1,823) — — 3,422 Paid-in capital for employee stock options granted (note 14(c)) — — 9,391 — — 9,391 Utilization of windfall tax benefits from employee stock options(note 9(f)) — — 611 — — 611 Balance as at December 31, 2011 65,052,740 $303,395 $17,510 $(128,503) $(2,534) $189,868 Net income — — — 41,337 — 41,337 Other comprehensive income, before tax — — — — 100 100 Income tax recovery related to other comprehensive income(note 9(h)) — — — — 43 43 Paid-in capital for non-employee stock options granted (note 14(c)) — — 115 — — 115 Employee stock options exercised 1,414,685 9,946 (1,279) — — 8,667 Non-employee stock options exercised 15,000 403 (150) — — 253 Paid-in capital for employee stock options granted (note 14(c)) — — 12,359 — 12,359 Disgorgement of profit — — 314 — — 314 Utilization of windfall tax benefits from employee stock options(note 9(f)) — — 23 — — 23 Balance as at December 31, 2012 66,482,425 $313,744 $28,892 $(87,166) $(2,391) $253,079 Net income — — — 44,115 — 44,115 Other comprehensive income, before tax — — — — 1,766 1,766 Income tax expense related to other comprehensive income(note 9(h)) — — — — (504) (504) Paid-in capital for non-employee stock options granted (note 14(c)) — — 174 — — 174 Employee stock options exercised 1,291,347 12,044 (3,455) — — 8,589 Non-employee stock options exercised 25,000 613 (232) — — 381 Paid-in capital for employee stock options granted (note 14(c)) — — 9,150 — — 9,150 Paid-in capital for restricted share units granted (note 14(c)) — — 2,120 — — 2,120 Restricted share units vested (net of shares withheld for tax) (note14(c)) 42,461 1,114 (1,215) — — (101) Share issuance expenses — (202) — — — (202) Utilization of windfall tax benefits from employee stock options(note 9(f)) — — 1,018 — — 1,018 Balance as at December 31, 2013 67,841,233 $327,313 $36,452 $(43,051) $(1,129) $319,585 (The accompanying notes are an integral part of these consolidated financial statements) 85Table of ContentsIMAX CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn accordance with United States Generally Accepted Accounting Principles(Tabular amounts in thousands of U.S. dollars, unless otherwise stated)1. Description of the BusinessIMAX Corporation together with its consolidated wholly-owned subsidiaries (the “Company”) is an entertainment technology company specializing indigital and film-based motion picture technologies, whose principal activities are the: • design, manufacture, sale and lease of proprietary theater systems for IMAX theaters principally owned and operated by commercial andinstitutional customers located in 57 countries as at December 31, 2013; • production, digital re-mastering, post-production and/or distribution of certain films shown throughout the IMAX theater network; • provision of other services to the IMAX theater network, including ongoing maintenance and extended warranty services for IMAX theatersystems; • operation of certain theaters primarily in the United States; and • other activities, which includes short-term rental of cameras and aftermarket sales of projector system components.The Company refers to all theaters using the IMAX theater system as “IMAX theaters.”The Company’s revenues from equipment and product sales include the sale and sales-type leasing of its theater systems and sales of their associatedparts and accessories, contingent rentals on sales-type leases and contingent additional payments on sales transactions.The Company’s revenues from services include the provision of maintenance and extended warranty services, digital re-mastering services, filmproduction and film post-production services, film distribution, and the operation of certain theaters.The Company’s rentals include revenues from the leasing of its theater systems that are operating leases, contingent rentals on operating leases, jointrevenue sharing arrangements and the rental of the Company’s cameras and camera equipment.The Company’s finance income represents interest income arising from the sales-type leases and financed sales of the Company’s theater systems.The Company’s other revenues include the settlement of contractual obligations with customers.2. Summary of Significant Accounting PoliciesSignificant accounting policies are summarized as follows:The Company prepares its consolidated financial statements in accordance with U.S. GAAP.(a) Basis of ConsolidationThe consolidated financial statements include the accounts of the Company together with its wholly-owned subsidiaries, except for subsidiaries whichthe Company has identified as variable interest entities (“VIEs”) where the Company is not the primary beneficiary.The Company has evaluated its various variable interests to determine whether they are VIEs as required by the Consolidation Topic of the FinancialAccounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”). The Company has 9 film production companies thatare VIEs. For 2 of the Company’s film production companies, the Company has determined that it is the primary beneficiary of these entities as the Companyhas the power to direct the activities of the respective VIE that most significantly impact the respective VIE’s economic performance and has the obligation toabsorb losses of the VIE that 86Table of Contentscould potentially be significant to the respective VIE or the right to receive benefits from the respective VIE that could potentially be significant to the respectiveVIE. The Company continues to consolidate these entities, with no material impact on the operating results or financial condition of the Company, as theseproduction companies have total assets of $nil (December 31, 2012 — $nil) and total liabilities of $nil as at December 31, 2013 (December 31, 2012 — $nil).For the other 7 film production companies which are VIEs, the Company did not consolidate these film entities since it does not have the power to directactivities and does not absorb the majority of the expected losses or expected residual returns. The Company equity accounts for these entities. As atDecember 31, 2013, these 7 VIEs have total assets and total liabilities of $5.2 million (December 31, 2012 — $15.9 million). Earnings of the investeesincluded in the Company’s consolidated statement of operations amounted to $nil in 2013 (2012 — $nil). The carrying value of these investments in VIEsthat are not consolidated is $nil at December 31, 2013 (December 31, 2012 — $nil). A loss in value of an investment other than a temporary decline isrecognized as a charge to the consolidated statement of operations. The Company’s exposure, which is determined based on the level of funding contributed bythe Company and the development stage of the respective film, is $1.5 million at December 31, 2013 (2012 — $0.9 million).The Company accounts for investments in new business ventures using the guidance of the FASB ASC 323 “Investments – Equity Method and JointVentures” (“ASC 323”) and ASC 320 “Investments in Debt and Equity Securities” (“ASC 320”), as appropriate. At December 31, 2013, the equity method ofaccounting is being utilized for an investment with a carrying value of $0.4 million (December 31, 2012 — $3.0 million). In 2013, the Company hascontributed $1.4 million, net of its share of costs, to a new business venture. This venture is still in the early-stage of start-up. The Company has determinedit is not the primary beneficiary of these VIEs, and therefore these entities have not been consolidated. In addition, the Company has an investment in preferredstock of another business venture of $1.5 million which meets the criteria for classification as a debt security under ASC 320 and is recorded at its fair valueof $1.0 million at December 31, 2013 (December 31, 2012 — $1.4 million). This investment is classified as an available-for-sale investment. In 2013, theCompany invested $2.5 million in the preferred shares of an enterprise which meet the criteria for classification as an equity security under ASC 325 –“Investments – Others” (“ASC 325”) and accrued $0.5 million pertaining to warrants related to the respective investment. The total carrying value ofinvestments in new business ventures at December 31, 2013 and December 31, 2012 is $5.8 million and $4.4 million, respectively, and is recorded in OtherAssets.All significant intercompany accounts and transactions, including all unrealized intercompany profits on transactions with equity-accounted investees,have been eliminated.In 2013, the Company determined that the functional currency of one of its wholly-owned subsidiaries had changed from the Company’s reportingcurrency to the currency of the nation is which it is domiciled. As a result, in accordance with the FASB ASC 830 “Foreign Currency Matters”, the adjustmentattributable to the current-rate translation of non-monetary assets as of the date of the change was reported in other comprehensive income.(b) Use of EstimatesThe preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affectthe reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of consolidated financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual results could be materially different from these estimates. Significant estimates made bymanagement include, but are not limited to: selling prices associated with the individual elements in multiple element arrangements; residual values of leasedtheater systems; economic lives of leased assets; allowances for potential uncollectibility of accounts receivable, financing receivables and net investment inleases; provisions for inventory obsolescence; ultimate revenues for film assets; impairment provisions for film assets, long-lived assets and goodwill;depreciable lives of property, plant and equipment; useful lives of intangible assets; pension plan assumptions; accruals for contingencies including taxcontingencies; valuation allowances for deferred income tax assets; and, estimates of the fair value of stock-based payment awards.(c) Cash and Cash EquivalentsThe Company considers all highly liquid investments convertible to a known amount of cash and with an original maturity of three months or less to becash equivalents. 87Table of Contents(d) Accounts Receivable and Financing ReceivablesAllowances for doubtful accounts receivable are based on the Company’s assessment of the collectibility of specific customer balances, which is basedupon a review of the customer’s credit worthiness, past collection history and the underlying asset value of the equipment, where applicable. Interest onoverdue accounts receivable is recognized as income as the amounts are collected.For trade accounts receivable that have characteristics of both a contractual maturity of one year or less, and arose from the sale of other goods orservices, the Company charges off the balance against the allowance for doubtful accounts when it is known that a provided amount will not be collected.The Company monitors the performance of the theaters to which it has leased or sold theater systems which are subject to ongoing payments. Whenfacts and circumstances indicate that there is a potential impairment in the net investment in lease or a financing receivable, the Company will evaluate thepotential outcome of either renegotiations involving changes in the terms of the receivable or defaults on the existing lease or financed sale agreements. TheCompany will record a provision if it is considered probable that the Company will be unable to collect all amounts due under the contractual terms of thearrangement or a renegotiated lease amount will cause a reclassification of the sales-type lease to an operating lease.When the net investment in lease or the financing receivable is impaired, the Company will recognize a provision for the difference between the carryingvalue in the investment and the present value of expected future cash flows discounted using the effective interest rate for the net investment in the lease or thefinancing receivable. If the Company expects to recover the theater system, the provision is equal to the excess of the carrying value of the investment over thefair value of the equipment.When the minimum lease payments are renegotiated and the lease continues to be classified as a sales-type lease, the reduction in payments is applied toreduce unearned finance income.These provisions are adjusted when there is a significant change in the amount or timing of the expected future cash flows or when actual cash flowsdiffer from cash flow previously expected.Once a net investment in lease or financing receivable is considered impaired, the Company does not recognize interest income until the collectibilityissues are resolved. When finance income is not recognized, any payments received are applied against outstanding gross minimum lease amounts receivableor gross receivables from financed sales. Once the collectability issues are resolved, the Company will once again commence the recognition of interest income.(e) InventoriesInventories are carried at the lower of cost, determined on an average cost basis, and net realizable value except for raw materials, which are carried at thelower of cost and replacement cost. Finished goods and work-in-process include the cost of raw materials, direct labor, theater design costs, and an applicableshare of manufacturing overhead costs.The costs related to theater systems under sales and sales-type lease arrangements are relieved from inventory to costs and expenses applicable torevenues-equipment and product sales when revenue recognition criteria are met. The costs related to theater systems under operating lease arrangements andjoint revenue sharing arrangements are transferred from inventory to assets under construction in property, plant and equipment when allocated to a signedjoint revenue sharing arrangement or when the arrangement is first classified as an operating lease.The Company records provisions for excess and obsolete inventory based upon current estimates of future events and conditions, including theanticipated installation dates for the current backlog of theater system contracts, technological developments, signings in negotiation, growth prospects withinthe customers’ ultimate marketplace and anticipated market acceptance of the Company’s current and pending theater systems.Finished goods inventories can contain theater systems for which title has passed to the Company’s customer (as the theater system has been delivered tothe customer) but the revenue recognition criteria as discussed in note 2(m) have not been met.(f) Film AssetsCosts of producing films, including labor, allocated overhead, capitalized interest, and costs of acquiring film rights are recorded as film assets andaccounted for in accordance with Entertainment-Films Topic of the FASB ASC. Production financing provided by third parties that acquire substantive rightsin the film is recorded as a reduction of the cost of the production. Film assets are amortized and participation costs are accrued using the individual-film-forecast method in the same ratio that current gross revenues 88Table of Contentsbear to current and anticipated future ultimate revenues. Estimates of ultimate revenues are prepared on a title-by-title basis and reviewed regularly bymanagement and revised where necessary to reflect the most current information. Ultimate revenues for films include estimates of revenue over a period not toexceed ten years following the date of initial release.Film exploitation costs, including advertising costs, are expensed as incurred.Costs, including labor and allocated overhead, of digitally re-mastering films where the copyright is owned by a third party and the Company shares inthe revenue of the third party are included in film assets. These costs are amortized using the individual-film-forecast method in the same ratio that currentgross revenues bear to current and anticipated future ultimate revenues from the re-mastered film.The recoverability of film assets is dependent upon commercial acceptance of the films. If events or circumstances indicate that the recoverable amountof a film asset is less than the unamortized film costs, the film asset is written down to its fair value. The Company determines the fair value of its film assetsusing a discounted cash flow model.(g) Property, Plant and EquipmentProperty, plant and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives as follows: Theater system components (1) — over the equipment’s anticipated useful life (7 to 20 years)Camera equipment — 5 to 10 yearsBuildings — 20 to 25 yearsOffice and production equipment — 3 to 5 yearsLeasehold improvements — over the shorter of the initial term of the underlying leases plus any reasonably assured renewal terms, and theuseful life of the asset (1)includes equipment under joint revenue sharing arrangements.Equipment and components allocated to be used in future operating leases and joint revenue sharing arrangements, as well as direct labor costs and anallocation of direct production costs, are included in assets under construction until such equipment is installed and in working condition, at which time theequipment is depreciated on a straight-line basis over the lesser of the term of the joint revenue sharing arrangement and the equipment’s anticipated useful life.The Company reviews the carrying values of its property, plant and equipment for impairment whenever events or changes in circumstances indicatethat the carrying amount of an asset or asset group might not be recoverable. Assets are grouped at the lowest level for which identifiable cash flows are largelyindependent when testing for, and measuring for, impairment. In performing its review of recoverability, the Company estimates the future cash flows expectedto result from the use of the asset or asset group and its eventual disposition. If the sum of the expected undiscounted future cash flows is less than thecarrying amount of the asset or asset group, an impairment loss is recognized in the consolidated statements of operations. Measurement of the impairment lossis based on the excess of the carrying amount of the asset or asset group over the fair value calculated using discounted expected future cash flows.A liability for the fair value of an asset retirement obligation associated with the retirement of tangible long-lived assets and the associated asset retirementcosts are recognized in the period in which the liability and costs are incurred if a reasonable estimate of fair value can be made using a discounted cash flowmodel. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and subsequently amortized over the asset’suseful life. The liability is accreted over the period to expected cash outflows. 89Table of Contents(h) Other AssetsOther assets include insurance recoverable, deferred charges on debt financing, deferred selling costs that are direct and incremental to the acquisition ofsales contracts, foreign currency derivatives, lease incentives and investments in new business ventures.Costs of debt financing are deferred and amortized over the term of the debt using the effective interest method.Selling costs related to an arrangement incurred prior to recognition of the related revenue are deferred and expensed to costs and expenses applicable torevenues upon: (i) recognition of the contract’s theater system revenue; or (ii) abandonment of the sale arrangement.Foreign currency derivatives are accounted for at fair value using quoted prices in closed exchanges (Level 2 input in accordance with the Fair ValueMeasurements Topic of the FASB ASC hierarchy).The Company may provide lease incentives to certain exhibitors which are essential to entering into the respective lease arrangement. Lease incentivesinclude payments made to or on behalf of the exhibitor. These lease incentives are recognized as a reduction in rental revenue on a straight-line basis over theterm of the lease.Investments in new business ventures are accounted for using ASC 323 as described in note 2(a). The Company currently accounts for its 10.1%investment in 3net, a 3D television channel operated by a limited liability corporation owned by the Company and its joint venture investment with TCLMultimedia Technology Holdings Limited, using the equity method of accounting. The Company accounts for in-kind contributions to its equity investmentin accordance with ASC 845 “Non-Monetary Transactions” (“ASC 845”) whereby if the fair value of the asset or assets contributed is greater than thecarrying value a partial gain shall be recognized.The Company’s investment in debt securities is classified as an available-for-sale investment in accordance with ASC 320. Unrealized holding gainsand losses for this investment is excluded from earnings and reported in other comprehensive income until realized. Realization occurs upon sale of a portion ofor the entire investment. The investment is impaired if the fair value is less than cost, which is assessed in each reporting period. When the Company intendsto sell a specifically identified beneficial interest, a write-down for other-than-temporary impairment shall be recognized in earnings.The Company’s investment in preferred shares, which meets the criteria for classification as an equity security in accordance with ASC 325, isaccounted for at cost. The Company records the related warrants at fair value upon recognition date. Warrants are recognized over the term of the agreement.(i) GoodwillGoodwill represents the excess of purchase price over the fair value of net identifiable assets acquired in a purchase business combination. Goodwill isnot subject to amortization and is tested for impairment annually, or more frequently if events or circumstances indicate that the asset might be impaired. TheCompany performs a qualitative assessment of its reporting units and certain select quantitative calculations against its current long-range plan to determinewhether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount (Step 0).The Company first assesses certain qualitative factors to determine whether the existence of events or circumstances leads to determination that it is more likelythan not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Companydetermines it is not more likely than not that the fair value of a reporting unit is less than its carry amount, then performing the two-step impairment test isunnecessary. When necessary, impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, includinggoodwill, to the fair value of the reporting unit. The fair value of the reporting unit is estimated using a discounted cash flow approach. If the carrying amountof the reporting unit exceeds its fair value, then a second step is performed to measure the amount of impairment loss, if any, by comparing the fair value ofeach identifiable asset and liability in the reporting unit to the total fair value of the reporting unit. Any impairment loss is expensed in the consolidatedstatement of operations and is not reversed if the fair value subsequently increases. 90Table of Contents(j) Other Intangible AssetsPatents, trademarks and other intangibles are recorded at cost and are amortized on a straight-line basis over estimated useful lives ranging from 4 to 10years except, for intangible assets that have an identifiable pattern of consumption of the economic benefit of the asset, which are amortized over theconsumption pattern.The Company reviews the carrying values of its other intangible assets for impairment whenever events or changes in circumstances indicate that thecarrying amount of an asset or asset group might not be recoverable. Assets are grouped at the lowest level for which identifiable cash flows are largelyindependent when testing for, and measuring for, impairment. In performing its review for recoverability, the Company estimates the future cash flowsexpected to result from the use of the asset or asset group and its eventual disposition. If the sum of the expected undiscounted future cash flows is less than thecarrying amount of the asset or asset group, an impairment loss is recognized in the consolidated statement of operations. Measurement of the impairment lossis based on the excess of the carrying amount of the asset or asset group over the fair value calculated using discounted expected future cash flows.(k) Deferred RevenueDeferred revenue represents cash received prior to revenue recognition criteria being met for theater system sales or leases, film contracts, maintenanceand extended warranty services, film related services and film distribution.(l) Income TaxesIncome taxes are accounted for under the liability method whereby deferred income tax assets and liabilities are recognized for the expected future taxconsequences of temporary differences between the accounting and tax bases of assets and liabilities. Deferred income tax assets and liabilities are measuredusing enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect ondeferred income tax assets and liabilities of a change in tax rates or laws is recognized in the consolidated statement of operations in the period in which thechange is enacted. Investment tax credits are recognized as a reduction of income tax expense.The Company assesses realization of deferred income tax assets and, based on all available evidence, concludes whether it is more likely than not thatthe net deferred income tax assets will be realized. A valuation allowance is provided for the amount of deferred income tax assets not considered to berealizable.The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incuradditional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company adjusts tax expense to reflect the Company’songoing assessments of such matters which require judgment and can materially increase or decrease its effective rate as well as impact operating results. TheCompany provides for such exposures in accordance with the Income Taxes Topic of the FASB ASC.(m) Revenue RecognitionMultiple Element ArrangementsThe Company’s revenue arrangements with certain customers may involve multiple elements consisting of a theater system (projector, sound system,screen system and, if applicable, 3D glasses cleaning machine); services associated with the theater system including theater design support, supervision ofinstallation, and projectionist training; a license to use of the IMAX brand; 3D glasses; maintenance and extended warranty services; and licensing of films.The Company evaluates all elements in an arrangement to determine what are considered deliverables for accounting purposes and which of the deliverablesrepresent separate units of accounting based on the applicable accounting guidance in the Leases Topic of the FASB ASC; the Guarantees Topic of the FASBASC; the Entertainment – Films Topic of FASB ASC; and the Revenue Recognition Topic of the FASB. If separate units of accounting are either requiredunder the relevant accounting standards or determined to be applicable under the Revenue Recognition Topic, the total consideration received or receivable in thearrangement is allocated based on the applicable guidance in the above noted standards. 91Table of ContentsTheater SystemsThe Company has identified the projection system, sound system, screen system and, if applicable, 3D glasses cleaning machine, theater designsupport, supervision of installation, projectionist training and the use of the IMAX brand to be a single deliverable and a single unit of accounting (the“System Deliverable”). When an arrangement does not include all the elements of a System Deliverable, the elements of the System Deliverable included in thearrangement are considered by the Company to be a single deliverable and a single unit of accounting. The Company is not responsible for the physicalinstallation of the equipment in the customer’s facility; however, the Company supervises the installation by the customer. The customer has the right to usethe IMAX brand from the date the Company and the customer enter into an arrangement.The Company’s System Deliverable arrangements involve either a lease or a sale of the theater system. Consideration for the System Deliverable, otherthan for those delivered pursuant to joint revenue sharing arrangements, consist of upfront or initial payments made before and after the final installation of thetheater system equipment and ongoing payments throughout the term of the lease or over a period of time, as specified in the arrangement. The ongoingpayments are the greater of an annual fixed minimum amount or a certain percentage of the theater box-office. Amounts received in excess of the annual fixedminimum amounts are considered contingent payments. The Company’s arrangements are non-cancellable, unless the Company fails to perform itsobligations. In the absence of a material default by the Company, there is no right to any remedy for the customer under the Company’s arrangements. If amaterial default by the Company exists, the customer has the right to terminate the arrangement and seek a refund only if the customer provides notice to theCompany of a material default and only if the Company does not cure the default within a specified period.For arrangements entered into or materially modified after January 1, 2011, consideration is allocated to each unit of accounting based on the unit’srelative selling prices. The Company uses vender-specific objective evidence of selling price (VSOE) when the Company sells the deliverable separately and isthe price actually charged by the Company for that deliverable. VSOE is established for the Company’s System Deliverable, maintenance and extendedwarranty services and film license arrangements. The Company uses a best estimate of selling price (BESP) for units of accounting that do not have VSOE orthird party evidence of selling price. The Company determines BESP for a deliverable by considering multiple factors including the Company’s historicalpricing practices, product class, market competition and geography.Sales ArrangementsFor arrangements qualifying as sales, the revenue allocated to the System Deliverable is recognized in accordance with the Revenue Recognition Topic ofthe FASB ASC, when all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in fullworking condition, (ii) the 3D glasses cleaning machine, if applicable, has been delivered, (iii) projectionist training has been completed and (iv) the earlier of(a) receipt of written customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionisttraining or (b) public opening of the theater, provided there is persuasive evidence of an arrangement, the price is fixed or determinable and collectibility isreasonably assured.The initial revenue recognized consists of the initial payments received and the present value of any future initial payments and fixed minimum ongoingpayments that have been attributed to this unit of accounting. Contingent payments in excess of the fixed minimum ongoing payments are recognized whenreported by theater operators, provided collectibility is reasonably assured.The Company has also agreed, on occasion, to sell equipment under lease or at the end of a lease term. Consideration agreed to for these lease buyouts isincluded in revenues from equipment and product sales, when persuasive evidence of an arrangement exists, the fees are fixed or determinable, collectibility isreasonably assured and title to the theater system passes from the Company to the customer.Lease ArrangementsThe Company uses the Leases Topic of FASB ASC to evaluate whether an arrangement is a lease within the scope of the accounting standard.Arrangements not within the scope of the accounting standard are accounted for either as a sales or services arrangement, as applicable. 92Table of ContentsFor lease arrangements, the Company determines the classification of the lease in accordance with the Lease Topic of FASB ASC. A lease arrangementthat transfers substantially all of the benefits and risks incident to ownership of the equipment is classified as a sales-type lease based on the criteriaestablished by the accounting standard; otherwise the lease is classified as an operating lease. Prior to commencement of the lease term for the equipment, theCompany may modify certain payment terms or make concessions. If these circumstances occur, the Company reassesses the classification of the lease basedon the modified terms and conditions.For sales-type leases, the revenue allocated to the System Deliverable is recognized when the lease term commences, which the Company deems to bewhen all of the following conditions have been met: (i) the projector, sound system and screen system have been installed and are in full working condition;(ii) the 3D glasses cleaning machine, if applicable, has been delivered; (iii) projectionist training has been completed; and (iv) the earlier of (a) receipt of thewritten customer acceptance certifying the completion of installation and run-in testing of the equipment and the completion of projectionist training or(b) public opening of the theater, provided collectibility is reasonably assured.The initial revenue recognized for sales-type leases consists of the initial payments received and the present value of future initial payments and fixedminimum ongoing payments computed at the interest rate implicit in the lease. Contingent payments in excess of the fixed minimum payments are recognizedwhen reported by theater operators, provided collectibility is reasonably assured.For operating leases, initial payments and fixed minimum ongoing payments are recognized as revenue on a straight-line basis over the lease term. Foroperating leases, the lease term is considered to commence when all of the following conditions have been met: (i) the projector, sound system and screensystem have been installed and in full working condition; (ii) the 3D glasses cleaning machine, if applicable, has been delivered; (iii) projectionist training hasbeen completed; and (iv) the earlier of (a) receipt of written customer acceptance certifying the completion of installation and run-in testing of the equipment andthe completion of projectionist training or (b) public opening of the theater. Contingent payments in excess of fixed minimum ongoing payments are recognizedas revenue when reported by theater operators, provided collectibility is reasonably assured.Revenues from joint revenue sharing arrangements with upfront payments that qualify for classification as sales and sales-type leases are recognized inaccordance with the sales and sales-type lease criteria discussed above. Contingent revenues from joint revenue sharing arrangements are recognized as box-office results and concessions revenues are reported by the theater operator, provided collectibility is reasonably assured.Finance IncomeFinance income is recognized over the term of the sales-type lease or financed sales receivable, provided collectibility is reasonably assured. Financeincome recognition ceases when the Company determines that the associated receivable is not collectible.Finance income is suspended when the Company identifies a theater that is delinquent, non-responsive or not negotiating in good faith with theCompany. Once the collectability issues are resolved the Company will resume recognition of finance income.Improvements and ModificationsImprovements and modifications to the theater system after installation are treated as separate revenue transactions, if and when the Company isrequested to perform these services. Revenue is recognized for these services when the performance of the services has been completed, provided there ispersuasive evidence of an arrangement, the fee is fixed or determinable and collectibility is reasonably assured.Cost of Equipment and Product SalesTheater systems and other equipment subject to sales-type leases and sales arrangements includes the cost of the equipment and costs related to projectmanagement, design, delivery and installation supervision services as applicable. The costs related to theater systems under sales and sales-type leasearrangements are relieved from inventory to costs and expenses applicable to revenues-equipment and product sales when revenue recognition criteria are met.In addition, the Company defers direct selling costs such as sales commissions and other amounts related to these contracts until the related revenue isrecognized. These costs included in costs and expenses applicable to revenues-equipment and product sales, totaled $2.5 million in 2013 (2012 – $2.7million, 2011 – $2.4 million). The cost of equipment and product sales prior to direct selling costs was $35.0 million in 2013 (2012 – $34.8 million, 2011 –$36.3 million). The Company may have warranty obligations at or after the time revenue is recognized which require replacement of certain parts that do notaffect the functionality of the theater system or services. The costs for warranty obligations for known issues are accrued as charges to costs and expensesapplicable to revenues-equipment and product sales at the time revenue is recognized based on the Company’s past historical experience and cost estimates. 93Table of ContentsCost of RentalsFor theater systems and other equipment subject to an operating lease or placed in a theater operators’ venue under a joint revenue sharing arrangement,the cost of equipment and those costs that result directly from and are essential to the arrangement, is included within property, plant and equipment.Depreciation and impairment losses, if any, are included in cost of rentals based on the accounting policy set out in note 2(g). Commissions are recognized ascosts and expenses applicable to revenues-rentals in the month they are earned, which is typically the month of installation. These costs totaled $1.9 million in2013 (2012 — $1.5 million, 2011 — $2.3 million). Direct advertising and marketing costs for each theater are charged to costs and expenses applicable torevenues-rentals as incurred. These costs totaled $1.7 million in 2013 (2012 — $1.9 million, 2011 — $3.2 million).Terminations, Consensual Buyouts and ConcessionsThe Company enters into theater system arrangements with customers that contain customer payment obligations prior to the scheduled installation ofthe theater system. During the period of time between signing and the installation of the theater system, which may extend several years, certain customers maybe unable to, or may elect not to, proceed with the theater system installation for a number of reasons including business considerations, or the inability toobtain certain consents, approvals or financing. Once the determination is made that the customer will not proceed with installation, the arrangement may beterminated under the default provisions of the arrangement or by mutual agreement between the Company and the customer (a “consensual buyout”).Terminations by default are situations when a customer does not meet the payment obligations under an arrangement and the Company retains the amountspaid by the customer. Under a consensual buyout, the Company and the customer agree, in writing, to a settlement and to release each other of any furtherobligations under the arrangement or an arbitrated settlement is reached. Any initial payments retained or additional payments received by the Company arerecognized as revenue when the settlement arrangements are executed and the cash is received, respectively. These termination and consensual buyout amountsare recognized in Other revenues.In addition, the Company could agree with customers to convert their obligations for other theater system configurations that have not yet been installedto arrangements to acquire or lease the IMAX digital theater system. The Company considers these situations to be a termination of the previous arrangementand origination of a new arrangement for the IMAX digital theater system. For all arrangements entered into or modified prior to the date of adoption of theamended FASB ASC 605-25, the Company continues to defer an amount of any initial fees received from the customer such that the aggregate of the feesdeferred and the net present value of the future fixed initial and ongoing payments to be received from the customer equals the selling price of the IMAX digitaltheater system to be leased or acquired by the customer. Any residual portion of the initial fees received from the customer for the terminated theater system isrecorded in other revenues at the time when the obligation for the original theater system is terminated and the new theater system arrangement is signed. Underthe amended FASB ASC 605-25, for all arrangements entered into or materially modified after the date of adoption, the total arrangement consideration to bereceived is allocated on a relative selling price basis to the digital upgrade and the termination of the previous theater system. The arrangement considerationallocated to the termination of the existing arrangement is recorded in Other revenues at the time when the obligation for the original theater system is terminatedand the new theater system arrangement is signed.The Company may offer certain incentives to customers to complete theater system transactions including payment concessions or free services andproducts such as film licenses or 3D glasses. Reductions in, and deferral of, payments are taken into account in determining the sales price either by a directreduction in the sales price or a reduction of payments to be discounted in accordance with the Leases or Interests Topic of the FASB ASC. Free products andservices are accounted for as separate units of accounting. Other consideration given by the Company to customers are accounted for in accordance with theRevenue Recognition Topic of the FASB ASC.Maintenance and Extended Warranty ServicesMaintenance and extended warranty services may be provided under a multiple element arrangement or as a separately priced contract. Revenues relatedto these services are deferred and recognized on a straight-line basis over the contract period and are recognized in Services revenues. Maintenance and extendedwarranty services includes maintenance of the customer’s equipment and replacement parts. Under certain maintenance arrangements, maintenance servicesmay include additional training services to the customer’s technicians. All costs associated with this maintenance and extended warranty program are expensedas incurred. A loss on maintenance and extended warranty services is recognized if the expected cost of providing the services under the contracts exceeds therelated deferred revenue. 94Table of ContentsFilm Production and IMAX DMR ServicesIn certain film arrangements, the Company produces a film financed by third parties whereby the third party retains the copyright and the Companyobtains exclusive distribution rights. Under these arrangements, the Company is entitled to receive a fixed fee or to retain as a fee the excess of funding overcost of production (the “production fee”). The third parties receive a portion of the revenues received by the Company from distributing the film, which ischarged to costs and expenses applicable to revenues-services. The production fees are deferred, and recognized as a reduction in the cost of the film based onthe ratio of the Company’s distribution revenues recognized in the current period to the ultimate distribution revenues expected from the film. Film exploitationcosts, including advertising and marketing totaled $4.2 million in 2013 (2012 — $3.3 million, 2011 — $3.8 million) and are recorded in costs and expensesapplicable to revenues-services as incurred.Revenue from film production services where the Company does not hold the associated distribution rights are recognized in Services revenues whenperformance of the contractual service is complete, provided there is persuasive evidence of an agreement, the fee is fixed or determinable and collectibility isreasonably assured.Revenues from digitally re-mastering (IMAX DMR) films where third parties own or hold the copyrights and the rights to distribute the film are derivedin the form of processing fees and recoupments calculated as a percentage of box-office receipts generated from the re-mastered films. Processing fees arerecognized as Services revenues when the performance of the related re-mastering service is completed provided there is persuasive evidence of an arrangement,the fee is fixed or determinable and collectibility is reasonably assured. Recoupments, calculated as a percentage of box-office receipts, are recognized asServices revenue when box-office receipts are reported by the third party that owns or holds the related film rights, provided collectibility is reasonablyassured.Losses on film production and IMAX DMR services are recognized as costs and expenses applicable to revenues-services in the period when it isdetermined that the Company’s estimate of total revenues to be realized by the Company will not exceed estimated total production costs to be expended on thefilm production and the cost of IMAX DMR services.Film DistributionRevenue from the licensing of films is recognized in Services revenues when persuasive evidence of a licensing arrangement exists, the film has beencompleted and delivered, the license period has begun, the fee is fixed or determinable and collectibility is reasonably assured. When license fees are based on apercentage of box-office receipts, revenue is recognized when box-office receipts are reported by exhibitors, provided collectibility is reasonably assured. Filmexploitation costs, including advertising and marketing, totaled $0.4 million in 2013 (2012 — $1.5 million, 2011 — $1.9 million) and are recorded in costsand expenses applicable to revenues-services as incurred.Film Post-Production ServicesRevenues from post-production film services are recognized in Services revenues when performance of the contracted services is complete provided thereis persuasive evidence of an arrangement, the fee is fixed or determinable and collectibility is reasonably assured.OtherThe Company recognizes revenue in Services revenues from its owned and operated theaters resulting from box-office ticket and concession sales astickets are sold, films are shown and upon the sale of various concessions. The sales are cash or credit card transactions with theatergoers based on fixedprices per seat or per concession item.In addition, the Company enters into commercial arrangements with third party theater owners resulting in the sharing of profits and losses which arerecognized in Services revenues when reported by such theaters. The Company also provides management services to certain theaters and recognizes revenueover the term of such services.Revenues on camera rentals are recognized in Rental revenues over the rental period.Revenue from the sale of 3D glasses is recognized in Equipment and product sales revenue when the 3D glasses have been delivered to the customer. 95Table of ContentsOther service revenues are recognized in Service revenues when the performance of contracted services is complete.(n) Research and DevelopmentResearch and development costs are expensed as incurred and primarily include projector and sound parts, labor, consulting fees, allocation ofoverheads and other related materials which pertain to the Company’s development of ongoing product and services. Research and development costspertaining to fixed and intangible assets that have alternative future uses are capitalized and amortized under their related policies.(o) Foreign Currency TranslationMonetary assets and liabilities of the Company’s operations which are denominated in currencies other than the functional currency are translated intothe functional currency at the exchange rates prevailing at the end of the period. Non-monetary items are translated at historical exchange rates. Revenue andexpense transactions are translated at exchange rates prevalent at the transaction date. In 2013, the Company determined that the functional currency of one ofits wholly-owned subsidiaries had changed from the Company’s reporting currency to the currency of the nation in which it is domiciled. As a result, inaccordance with the FASB ASC 830 “Foreign Currency Matters”, the adjustment attributable to current-rate translation of non-monetary assets as of the date ofthe change was reported in other comprehensive income (“OCI”). The functional currency of its other wholly-owned subsidiaries continues to be the UnitedStates dollar. Such exchange gains and losses are included in the determination of earnings in the period in which they arise.Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) are recognized inthe consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreign currency hedginginstruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income and reclassified to theconsolidated statement of operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in the consolidated statement ofoperations.(p) Stock-Based CompensationThe Company’s stock-based compensation generally includes stock options, restricted share units (“RSUs”) and stock appreciation rights (“SARs”).Stock-based compensation is recognized in accordance with the FASB ASC Topic 505, “Equity” and Topic 718, “Compensation-Stock Compensation.”The Company estimates the fair value of stock option and SAR awards on the date of grant using fair value measurement techniques such as an option-pricing model. The fair value of RSU awards is equal to the closing price of the Company’s common stock on the date of grant. The value of the portion of theemployee award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statement ofoperations.The Company utilizes a lattice-binomial option-pricing model (“Binomial Model”) to determine the fair value of stock option and SAR awards. The fairvalue determined by the Binomial Model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex andsubjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual andprojected employee stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exercise price togrant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that haveno vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options have certain characteristics that are significantlydifferent from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, theBinomial Model best provides a fair measure of the fair value of the Company’s employee stock options. See note 14(c) for the assumptions used to determinethe fair value of stock-based payment awards.Stock-based compensation expense includes compensation cost for employee stock-based payment awards granted and all modified, repurchased orcancelled employee awards. In addition, compensation expense includes the compensation cost, based on the grant-date fair value calculated for pro formadisclosures under ASC 718-10-55, for the portion of awards for which required service had not been rendered that were outstanding. Compensation expensefor these employee awards is recognized using the straight-line single-option method. As stock-based compensation expense recognized is based on awardsultimately expected to vest, it has been adjusted for estimated forfeitures. The Codification requires forfeitures to be estimated at the time of grant and revised,if subsequent information indicates that the actual forfeitures are likely to be different from previous estimates. The Company utilizes the market yield onU.S. treasury securities (also known as nominal rate) over the contractual term of the instrument being issued. 96Table of ContentsStock OptionsAs the Company stratifies its employees into homogeneous groups in order to calculate fair value under the Binomial Model, ranges of assumptionsused are presented for expected option life and annual termination probability. The Company uses historical data to estimate option exercise and employeetermination within the valuation model; various groups of employees that have similar historical exercise behavior are considered separately for valuationpurposes. The expected volatility rate is estimated based on a blended volatility method which takes into consideration the Company’s historical share pricevolatility, the Company’s implied volatility which is implied by the observed current market prices of the Company’s traded options and the Company’s peergroup volatility. The Company utilizes an expected term method to determine expected option life based on such data as vesting periods of awards, historicaldata that includes past exercise and post-vesting cancellations and stock price history.The Company’s policy is to issue new shares from treasury to satisfy stock options which are exercised.Restricted Share UnitsThe Company’s RSUs have been classified as equity in accordance with Topic 505. The fair value of RSU awards is equal to the closing price of theCompany’s common stock on the date of grant.Stock Appreciation RightsThe Company’s SARs have been classified as liabilities in accordance with Topic 505. The Company utilizes the Binomial Model to determine thevalue of these instruments settleable in cash.Awards to Non-EmployeesStock-based awards for services provided by non-employees are accounted for based on the fair value of the services received or the stock-based award,whichever is more reliably determinable. If the fair value of the stock-based award is used, the fair value is measured at the date of the award and remeasureduntil the earlier of the date that the Company has a performance commitment from the non-employees, the date performance is completed, or the date theawards vest.(q) Pension Plans and Postretirement BenefitsThe Company has a defined benefit pension plan, the Supplemental Executive Retirement Plan (the “SERP”). As the Company’s SERP is unfunded, asat December 31, 2013, a liability is recognized for the projected benefit obligation.Assumptions used in computing the defined benefit obligations are reviewed annually by management in consultation with its actuaries and adjusted forcurrent conditions. Actuarial gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodicbenefits cost are recognized as a component of other comprehensive income. Amounts recognized in accumulated other comprehensive income includingunrecognized actuarial gains or losses and prior service costs are adjusted as they are subsequently recognized in the consolidated statement of operations ascomponents of net periodic benefit cost. Prior service costs resulting from the pension plan inception or amendments are amortized over the expected futureservice life of the employees, cumulative actuarial gains and losses in excess of 10% of the projected benefit obligation are amortized over the expected averageremaining service life of the employees, and current service costs are expensed when earned. The remaining weighted average future service life of the employeeused in computing the defined benefit obligation for the year ended December 31, 2013 was 3.0 years.For defined contribution pension plans, required contributions by the Company are recorded as an expense.A liability is recognized for the unfunded accumulated benefit obligation of the postretirement benefits plan. Assumptions used in computing theaccumulated benefit obligation are reviewed by management in consultation with its actuaries and adjusted for current conditions. Current service cost isrecognized as incurred and actuarial gains and losses are recognized as a component of other comprehensive income (loss). Amounts recognized inaccumulated other comprehensive income (loss) including unrecognized actuarial gains or losses are adjusted as they are subsequently recognized in theconsolidated statement of operations as components of net periodic benefit cost. 97Table of Contents(r) GuaranteesThe FASB ASC Guarantees Topic requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of certain guarantees.Disclosures as required under the accounting guidance have been included in note 13(i).3. New Accounting Standards and Accounting ChangesAdoption of New Accounting PoliciesIn January 2013, the FASB issued ASU No. 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets andLiabilities” (“ASU 2013-01”). The purpose of the amendment is to address implementation issues about the scope of FASB issued ASU No. 2011-11“Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities” “(ASU 2011-11”). ASU 2011-11 and ASU 2013-01 were issued in an effortto provide greater comparability within disclosures between entities reporting in U.S. GAAP and International Financial Reporting Standards (“IFRS”) thathave offsetting (netting) assets and liabilities. Entities will be required to disclose both gross and net information about both instruments and transactionseligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. Anentity is required to apply the amendments in ASU 2013-01 for annual reporting periods beginning on or after January 1, 2013 and interim periods withinthose annual periods. It is to be applied retrospectively for all comparative periods presented. The Company adopted the amended standard on January 1,2013. The adoption of the amended standard did not have a material impact on the Company’s consolidated financial statements.In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of AccumulatedOther Comprehensive Income” (“ASU 2013-02”). The amendments in ASU 2013-02 require an entity to report the effect of significant reclassifications out ofaccumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to bereclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the samereporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. Forpublic entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted the amendedstandard on January 1, 2013. The adoption of the amended standard did not have a material impact on the Company’s consolidated financial statements.In July 2013, the FASB issued ASU No. 2013-10, “Derivative and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or OvernightIndex Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2013-10”).The amendments in ASU 2013-10 are to permit the use of the Fed Funds Effective Swap Rate (OIS) as a U.S. benchmark interest rate for hedge accountingpurposes, in addition to U.S. government (UST) and London Interbank Offered Rate (LIBOR). The amendment also removes the restriction of using differentbenchmark rates for similar hedges. For public entities, the amendments are effective prospectively for qualifying new or redesignated hedging relationshipsentered into on or after July 17, 2013. The Company adopted the amended standard on July 17, 2013. The adoption of the amended standard did not have amaterial impact on the Company’s consolidated financial statements.Recently Issued FASB Accounting Standard Codification UpdatesIn February 2013, the FASB issued ASU No. 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements forWhich the Total Amount of the Obligation Is Fixed at the Reporting Date” (“ASU 2013-04”). The purpose of ASU 2013-04 is to provide guidance for therecognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligationwithin the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. ASU 2013-04 requiresan entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of thisguidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and anyadditional amount the reporting entity expects to pay on behalf of its co-obligors, as well as the nature and amount of the obligation as well as other informationabout those obligations. For public entities, the amendments are effective for fiscal years and interim reporting periods beginning after December 15, 2013.Early adoption by public entities is permitted. The Company adopted the amended standard on January 1, 2014. The adoption of the amended standard is notexpected to have a material impact on the Company’s condensed consolidated financial statements for the period ending March 31, 2014.In March 2013, the FASB issued ASU No. 2013-05, “Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative TranslationAdjustment upon Derecognition of Certain subsidiaries or Groups of Assets within a Foreign Entity or of an 98Table of ContentsInvestment in a Foreign Entity” (“ASU 2013-05”). The purpose of ASU 2013-05 is to resolve the diversity in practice in relation to the treatment of the releaseof cumulative translation adjustments (“CTA”) upon sale (in full or part) of a foreign investment. It applies to the release of the CTA into net income when aparent either sells a part of all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is anonprofit activity or a business within a foreign entity. For public entities, the amendments are effective for fiscal years and interim reporting periodsbeginning after December 15, 2013. Early adoption by public entities is permitted. The Company adopted the amended standard on January 1, 2014. Theadoption of the amended standard is not expected to have a material impact on the Company’s condensed consolidated financial statements for the periodending March 31, 2014.In April 2013, the FASB issued ASU No. 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting” (“ASU 2013-07”). The amendments of ASU 2013-07 require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation isimminent and to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of theexpected cash proceeds from liquidation. The amendments are effective for entities that determine liquidation is imminent during annual reporting periodsbeginning after December 15, 2013 and interim periods therein. Standards should be applied prospectively from the day liquidation becomes imminent. Earlyadoption is permitted. The Company adopted the amended standard on January 1, 2014. The adoption of the amended standard is not expected to have amaterial impact on the Company’s condensed consolidated financial statements for the period ending March 31, 2014.In July 2013, the FASB issued ASU No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating LossCarryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2013-11”). Theamendments of ASU 2013-11 provide entities with guidance of how to present a provision for uncertain tax positions in the financial statements when a netoperating loss carryforward, a similar tax loss, or a tax credit carryforward exists. For public entities, the amendments are effective for fiscal years and interimreporting periods beginning after December 15, 2013. The Company adopted the amended standard on January 1, 2014. The adoption of the amendedstandard is not expected to have a material impact on the Company’s condensed consolidated financial statements for the period ending March 31, 2014.In December 2013, the FASB issued ASU No. 2013-12, “Definition of a Public Business Entity” (“ASU 2013-12”). The amendments of ASU 2013-12provide entities with a single definition of a Public Business Entity for use in future financial accounting and reporting guidance in 2014 and onwards. TheCompany adopted the amended standard on January 1, 2014. The adoption of the amended standard is not expected to have a material impact on theCompany’s condensed consolidated financial statements for the period ending March 31, 2014. 99Table of Contents4. Lease Arrangements(a) General Terms of Lease ArrangementsA number of the Company’s leases are classified as sales-type leases. Certain arrangements that are legal sales are also classified as sales-type leases ascertain clauses within the arrangements limit transfer of title or provide the Company with conditional rights to the system. The customer’s rights under theCompany’s lease arrangements are described in note 2(m). The Company classifies its lease arrangements at inception of the arrangement and, if required,after a modification of the lease arrangement, to determine whether they are sales-type leases or operating leases. Under the Company’s lease arrangements, thecustomer has the ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. TheCompany’s lease portfolio terms are typically non-cancellable for 10 to 20 years with renewal provisions from inception. Except for those sales arrangementsthat are classified as sales-type leases, the Company’s leases generally do not contain an automatic transfer of title at the end of the lease term. The Company’slease arrangements do not contain a guarantee of residual value at the end of the lease term. The customer is required to pay for executory costs such asinsurance and taxes and is required to pay the Company for maintenance and extended warranty generally after the first year of the lease until the end of thelease term. The customer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in the arrangement’sshipping terms and ending on the date the theater systems are delivered back to the Company.The Company has assessed the nature of its joint revenue sharing arrangements and concluded that, based on the guidance in the Revenue RecognitionTopic of the ASC, the arrangements contain a lease. Under joint revenue sharing arrangements, the customer has the ability and the right to operate thehardware components or direct others to operate them in a manner determined by the customer. The Company’s joint revenue sharing arrangements aretypically non-cancellable for 10 to 13 years with renewal provisions. Title to equipment under joint revenue sharing arrangements does not transfer to thecustomer. The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end of the term. The customer is required topay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extended warranty throughout the term. Thecustomer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in the arrangement’s shipping terms andending on the date the theater systems are delivered back to the Company. 100Table of Contents(b) Financing ReceivablesFinancing receivables, consisting of net investment in sales-type leases and receivables from financed sales of theater systems are as follows: As at December 31, 2013 2012 Gross minimum lease payments receivable $17,475 $18,880 Unearned finance income (3,052) (4,705) Minimum lease payments receivable 14,423 14,175 Accumulated allowance for uncollectible amounts (806) (1,130) Net investment in leases 13,617 13,045 Gross financed sales receivables 129,398 114,492 Unearned finance income (35,669) (33,278) Financed sales receivables 93,729 81,214 Accumulated allowance for uncollectible amounts (236) (66) Net financed sales receivables 93,493 81,148 Total financing receivables $107,110 $94,193 Net financed sales receivables due within one year $17,335 $10,482 Net financed sales receivables due after one year $76,158 $70,666 In 2013, the financed sales receivables had a weighted average effective interest rate of 9.8% (2012 — 8.7%).(c) Contingent FeesContingent fees that meet the Company’s revenue recognition policy, from customers under various arrangements, have been reported in revenue asfollows: Years Ended December 31, 2013 2012 2011 Sales $2,493 $1,797 $976 Sales-type leases 184 308 517 Operating leases 1,009 930 1,232 Subtotal - sales, sales-type leases and operating leases 3,686 3,035 2,725 Joint revenue sharing arrangements 64,130 57,526 30,764 $67,816 $60,561 $33,489 (d) Future Minimum Rental PaymentsFuture minimum rental payments receivable from operating and sales-type leases at December 31, 2013, for each of the next five years are as follows: Operating Leases Sales-Type Leases 2014 $2,075 $3,000 2015 1,637 2,215 2016 1,180 2,011 2017 1,121 1,700 2018 1,442 1,600 Thereafter 4,560 5,448 Total $12,015 $15,974 101Table of ContentsTotal future minimum rental payments receivable from sales-type leases at December 31, 2013 exclude $1.5 million which represents amounts billed butnot yet received.5. Inventories As at December 31, 2013 2012 Raw materials $4,321 $5,424 Work-in-process 500 338 Finished goods 5,004 10,032 $9,825 $15,794 At December 31, 2013, finished goods inventory for which title had passed to the customer and revenue was deferred amounted to $1.7 million(December 31, 2012 — $6.8 million). In 2013, the Company recognized revenue for 10 systems under a xenon-based digital upgrade sale arrangement whichwere previously installed but for which revenue recognition was deferred. Upon recognition of these 10 theater systems, the Company’s finished goodsinventory decreased by $3.4 million from December 31, 2012.Inventories at December 31, 2013 include write-downs for excess and obsolete inventory based upon current estimates of net realizable value consideringfuture events and conditions of $4.0 million (December 31, 2012 — $4.4 million).6. Film Assets As at December 31, 2013 2012 Completed and released films, net of accumulated amortization of$84,363(2012 —$67,363) $5,583 $2,959 Films in production 750 380 Films in development 743 398 $7,076 $3,737 The Company expects to amortize film costs of $5.0 million for released films within three years from December 31, 2013 (December 31, 2012 —$3.0 million), including $3.0 million, which reflects the portion of the costs of the Company’s completed films that are expected to be amortized within the nextyear. The amount of participation payments to third parties related to these films that the Company expects to pay during 2014, which is included in accruedliabilities at December 31, 2013, is $3.6 million (2012 — $5.8 million). 102Table of Contents7. Property, Plant and Equipment As at December 31, 2013 Cost AccumulatedDepreciation Net BookValue Equipment leased or held for use Theater system components(1)(2)(3)(4) $158,192 $51,537 $106,655 Camera equipment(7) 4,591 2,736 1,855 162,783 54,273 108,510 Assets under construction(5) 8,055 — 8,055 Other property, plant and equipment Land 1,593 — 1,593 Buildings 15,832 10,410 5,422 Office and production equipment(6) 27,190 18,707 8,483 Leasehold improvements 9,884 9,100 784 54,499 38,217 16,282 $225,337 $92,490 $132,847 As at December 31, 2012 Cost AccumulatedDepreciation Net BookValue Equipment leased or held for use Theater system components(1)(2)(3) $131,240 $39,140 $92,100 Camera equipment(7) 4,668 4,306 362 135,908 43,446 92,462 Assets under construction(5) 6,910 — 6,910 Other property, plant and equipment Land 1,593 — 1,593 Buildings 15,242 9,864 5,378 Office and production equipment(6) 25,777 19,779 5,998 Leasehold improvements 9,734 8,465 1,269 52,346 38,108 14,238 $195,164 $81,554 $113,610 (1)Included in theater system components are assets with costs of $14.3 million (2012 — $8.1 million) and accumulated depreciation of $8.6 million(2012 — $7.3 million) that are leased to customers under operating leases.(2)Included in theater system components are assets with costs of $138.1 million (2012 — $118.5 million) and accumulated depreciation of $38.4 million(2012 — $29.2 million) that are used in joint revenue sharing arrangements.(3)In 2013 and 2012, the Company identified and wrote off less than $0.1 million and $10.6 million, respectively of theater system components that areno longer in use and fully amortized.(4)During 2013, the Company signed an amending agreement governing one of its joint revenue sharing arrangements which increased the length of the termfor all IMAX theater systems under that arrangement from 10 to 13 years. As a result, the Company adjusted the estimated useful life of its IMAXdigital projection systems in use for those joint revenue sharing theaters, on a prospective basis, to reflect the change in term from 10 years to 13 years.This has resulted in decreased depreciation expense of $0.7 million in 2013 and $1.4 million in each of the next 5 years as the theater systems will nowbe depreciated over a longer estimated useful life. 103Table of Contents(5)Included in assets under construction are components with costs of $4.8 million (2012 — $4.1 million) that will be utilized to construct assets to beused in joint revenue sharing arrangements.(6)Fully amortized office and production equipment is still in use by the Company. In 2013, the Company identified and wrote off $0.3 million of officeand production equipment that is no longer in use.(7)Fully amortized camera equipment is still in use by the Company. In 2013 and 2012, the Company identified and wrote off $1.8 million and $1.9million, respectively of camera equipment that is no longer in use and fully amortized.8. Other Assets As at December 31, 2013 2012 Insurance recoverable (note 13) $11,094 $11,474 Lease incentives provided to theaters 5,172 4,554 Investment in new business ventures 5,380 1,350 Commissions and other deferred selling expenses 2,586 2,645 Deferred charges on debt financing 2,218 569 Equity-accounted investments 404 3,074 Foreign currency derivatives — 297 Other 180 — $27,034 $23,963 9. Income Taxes(a) Income (loss) from continuing operations before income taxes by tax jurisdiction are comprised of the following: Years Ended December 31, 2013 2012 2011 Canada $51,593 $55,477 $23,023 United States 678 3,148 9,510 China 12,012 (476) (5,722) Other (473) 141 388 $63,810 $58,290 $27,199 (b) The provision for income taxes related to income from continuing operations is comprised of the following: Years Ended December 31, 2013 2012 2011 Current: Canada $(1,068) $(370) $(1,174) United States (144) 15 (125) China (2,317) — — Other (201) — — (3,730) (355) (1,299) Deferred:(1) Canada (13,148) (14,441) (8,586) United States 214 (420) (838) China (252) 137 1,430 Other 337 — — (12,899) (14,724) (7,994) $(16,629) $(15,079) $(9,293) 104Table of Contents (1)For the year ended December 31, 2013, the Company has decreased the valuation allowance by $1.4 million (2012 - $0.1 million increase) relating to thefuture utilization of deductible temporary differences, tax credits, and certain net operating loss carryforwards, of which $0.3 million was recorded todeferred income tax expense and $1.0 million was recorded to share capital. Also included in the provision for income taxes is the deferred tax related toamounts recorded in and reclassified from other comprehensive income in the year of $0.6 million.(c) The provision for income taxes from continuing operations differs from the amount that would have resulted by applying the combined Canadianfederal and provincial statutory income tax rates to earnings due to the following: Years Ended December 31, 2013 2012 2011 Income tax provision at combined statutory rates $(16,914) $(15,447) $(7,684) Adjustments resulting from: Non-deductible stock based compensation (2,603) (3,166) (2,752) Other non-deductible/non-includable items (341) 12 (246) Decrease in valuation allowance relating to current year temporary differences 341 43 1,506 Withholding and other taxes (891) (1,095) (895) Changes to tax reserves 84 833 99 U.S. federal and state taxes (144) 45 (345) Income tax at different rates in foreign and other provincial jurisdictions 918 (56) (916) Impact of changes in future enacted tax rates on current year temporarydifferences — — (521) Carryforward of investment and other tax credits (non-refundable) 1,932 2,463 1,526 Effect of changes in legislation relating to enacted tax rate increases — 494 — Changes to deferred tax assets and liabilities resulting from audit and other taxreturn adjustments 11 483 226 Tax effect of loss from equity-accounted investments 1,040 463 642 Other (62) (151) 67 Provision for income taxes, as reported $(16,629) $(15,079) $(9,293) (d) The net deferred income tax asset is comprised of the following: As at December 31, 2013 2012 Net operating loss carryforwards $15,377 $15,475 Investment tax credit and other tax credit carryforwards 6,615 6,101 Write-downs of other assets — 690 Excess tax over accounting basis in property, plant and equipment and inventories (852) 14,020 Accrued pension liability 5,287 6,615 Other accrued reserves 4,138 2,340 Total deferred income tax assets 30,565 45,241 Income recognition on net investment in leases (1,552) (2,667) 29,013 42,574 Valuation allowance (4,754) (6,113) Net deferred income tax asset $24,259 $36,461 105Table of ContentsThe gross deferred tax assets include a liability of less than $0.1 million relating to the remaining tax effect resulting from the Company’s defined benefitpension plan, the related actuarial gains and losses, unrealized net gains on cash flow hedging instruments and the unrealized change in market value ofavailable-for-sale investments recorded in accumulated other comprehensive income.The Company has not provided Canadian taxes on cumulative earnings of non-Canadian affiliates and associated companies that have been reinvestedindefinitely. Taxes are provided for earnings of non-Canadian affiliates and associated companies when the Company determines that such earnings are nolonger indefinitely reinvested.(e) Estimated net operating loss carryforwards and estimated tax credit carryforwards expire as follows: Investment TaxCredits andOtherTax CreditCarryforwards Net OperatingLossCarryforwards 2014 $— $11 2015 — 20 2016 — 2017 — — 2018 — — Thereafter 8,276 49,381 $8,276 $49,412 Estimated net operating loss carryforwards can be carried forward to reduce taxable income through to 2033. Investment tax credits and other tax creditscan be carried forward to reduce income taxes payable through to 2033.As at December 31, 2013, the Company had approximately $14.8 million of U.S. consolidated federal net operating loss carryforwards and certainother state tax net loss carryforwards. Realization of some or all of the benefit from these U.S. net tax operating losses is dependent on the absence of certain“ownership changes” of the Company’s common shares. An “ownership change,” as defined in the applicable federal income tax rules, would place possiblelimitations, on an annual basis, on the use of such net operating losses to offset any future taxable income that the Company may generate. Such limitations,in conjunction with the net operating loss expiration provisions, could significantly reduce or effectively eliminate the Company’s ability to use its U.S. netoperating losses to offset any future taxable income.(f) Valuation allowanceThe provision for income taxes in the year ended December 31, 2013 includes a net income tax recovery of $0.3 million (2012 - $0.1 million provision)in continuing operations related to a decrease in the valuation allowance for the Company’s deferred tax assets and other tax adjustments. In 2013, theCompany reversed $1.4 million in valuation allowance relating to current period deductible temporary differences and loss carryforwards, of which $0.3million was included in the provision for income taxes and $1.0 million was included directly to shareholders’ equity. During the year ended December 31,2013, after considering all available evidence, both positive (including recent and historical profits, projected future profitability, backlog, carryforwardperiods for utilization of net operating loss carryovers and tax credits, discretionary deductions and other factors) and negative (including cumulative losses inpast years and other factors), it was concluded that the valuation allowance against the Company’s deferred tax assets should be reversed by approximately$1.4 million (2012 - $0.1 million increase). The remaining $4.8 million (2012 - $6.1 million) balance in the valuation allowance as at December 31, 2013 isprimarily attributable to certain U.S. federal and state net operating loss carryovers and federal tax credits that may expire unutilized. If the remaining $14.8million in U.S. consolidated federal tax net operating loss carryforwards are realized in a future period, the related $4.0 million valuation allowance release willbe recorded against Other Equity. 106Table of Contents(g) Uncertain tax positionsIn connection with the Company’s adoption of FIN 48, as of January 1, 2007, the Company recorded a net increase to its deficit of $2.1 million(including approximately $0.9 million related to accrued interest and penalties) related to the measurement of potential international withholding taxrequirements and a decrease in reserves for income taxes. As at December 31, 2013 and December 31, 2012, the Company had total unrecognized tax benefits(including interest and penalties) of $2.7 million and $2.8 million, respectively, for international withholding taxes. All of the unrecognized tax benefits couldimpact the Company’s effective tax rate if recognized. While the Company believes it has adequately provided for all tax positions, amounts asserted by taxingauthorities could differ from the Company’s accrued position. Accordingly, additional provisions on federal, provincial, state and foreign tax-related matterscould be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) for the years ended December 31, isas follows: (In thousands of U.S. Dollars) 2013 2012 2011 Balance at beginning of the year $2,286 $3,119 $3,219 Additions based on tax positions related to the current year 210 392 404 Additions for tax positions of prior years — — 16 Reductions for tax positions of prior years — (77) — Settlements — (38) — Reductions resulting from lapse of applicable statute of limitations and administrativepractices (294) (1,110) (520) Balance at the end of the year $2,202 $2,286 $3,119 Consistent with its historical financial reporting, the Company has elected to classify interest and penalties related to income tax liabilities, whenapplicable, as part of the interest expense in its consolidated statements of operations rather than income tax expense. The Company recovered less than $0.1million in potential interest and penalties associated with its provision for uncertain tax positions for the years ended December 31, 2013 (2012 - $0.8 millionrecovery, 2011 - $0.1 million expense).The number of years with open tax audits varies depending on the tax jurisdiction. The Company’s major taxing jurisdictions include Canada, theprovince of Ontario, the United States (including multiple states) and China.The Company’s 2008 through 2013 tax years remain subject to examination by the IRS for U.S. federal tax purposes, and the 2006 through 2013 taxyears remain subject to examination by the appropriate governmental agencies for Canadian federal tax purposes. There are other on-going audits in variousother jurisdictions that are not material to the financial statements.(h) Income Tax Effect on Comprehensive IncomeThe income tax (expense) benefit related to the following items included in other comprehensive income are: 2013 2012 2011 Amortization of actuarial loss on defined benefit plan $(114) $(91) $(53) Unrecognized actuarial gain or loss on defined benefit plan (588) 285 145 Gain on curtailment of postretirement benefit plan (100) — — Unrecognized actuarial gain or loss on postretirement benefit plans 43 33 58 Other-than-temporary impairment of available-for-sale investment — (19) — Change in market value of available-for-sale investment 45 (42) 61 Unrealized change in cash flow hedging instruments 264 (185) 45 Realized change in cash flow hedging instruments upon settlement (80) 62 190 Foreign currency translation adjustments 26 — — $(504) $43 $446 107Table of Contents10. Other Intangible Assets As at December 31, 2013 Cost AccumulatedAmortization Net BookValue Patents and trademarks $8,774 $5,741 $3,033 Licenses and intellectual property 19,950 3,260 16,690 Other 8,843 821 8,022 $37,567 $9,822 $27,745 As at December 31, 2012 Cost AccumulatedAmortization Net BookValue Patents and trademarks $8,499 $5,670 $2,829 Licenses and intellectual property 19,790 1,730 18,060 Other 7,022 — 7,022 $35,311 $7,400 $27,911 Other intangible assets of $8.8 million are comprised mainly of the Company’s investment in a new enterprise resource planning system, which theCompany started amortizing on January 1, 2013. Fully amortized other intangible assets are still in use by the Company. In 2013, the Company identified andwrote off $0.1 million of patents and trademarks that are no longer in use.During 2013, the Company acquired $2.5 million in other intangible assets. The net book value of these other intangible assets was $2.1 million as atDecember 31, 2013. The weighted average amortization period for these additions is 10 years.During 2013, the Company incurred costs of $0.1 million to renew or extend the term of acquired patents and trademarks which were recorded inselling, general and administrative expenses (2012 - $0.1 million).The estimated amortization expense for each of the years ended December 31, are as follows: 2014 $2,854 2015 2,814 2016 2,624 2017 2,624 2018 2,624 108Table of Contents11. Credit FacilityOn February 7, 2013, the Company amended and restated the terms of its existing senior secured credit facility (the “Prior Credit Facility”). Theamended and restated facility (the “Credit Facility”), with a scheduled maturity of February 7, 2018, has a maximum borrowing capacity of $200.0 million.The Prior Credit Facility had a maximum borrowing capacity of $110.0 million. Certain of the Company’s subsidiaries serve as guarantors (the“Guarantors”) of the Company’s obligations under the Credit Facility. The Credit Facility is collateralized by a first priority security interest in substantiallyall of the present and future assets of the Company and the Guarantors.The terms of the Credit Facility are set forth in the Third Amended and Restated Credit Agreement (the “Credit Agreement”), dated February 7, 2013,among the Company, the Guarantors, the lenders named therein, Wells Fargo Bank, National Association (“Wells Fargo”), as agent and issuing lender (WellsFargo, together with the lenders named therein, the “Lenders”) and Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner and in variouscollateral and security documents entered into by the Company and the Guarantors. Each of the Guarantors has also entered into a guarantee in respect of theCompany’s obligations under the Credit Facility.The Credit Facility permits the Company to undertake up to $150.0 million in stock buybacks and dividends, provided certain covenants in the CreditAgreement are maintained. In the event that the Company undertakes stock buybacks or makes dividend payments, any amounts outstanding under therevolving portion of the Credit Facility up to the first $75.0 million of any such stock buybacks and dividend payments will be converted to a term loan.The amounts outstanding under the Credit Facility bear interest, at the Company’s option, at (i) LIBOR plus a margin of (a) 1.50%, 1.75% or 2.00%depending on the Company’s Total Leverage Ratio (as defined in the Credit Agreement) per annum, or (ii) Wells Fargo’s prime rate plus a margin of 0.50% perannum. In addition, the Company is obligated to pay a Commitment Fee (as defined in the Credit Agreement) per annum of between 0.25% and 0.50% of theunused portion of the Credit Facility, depending on the Company’s Total Leverage Ratio. Term loans, if any, under the Credit Facility must be repaid under a5-year straight line amortization, with a balloon payment due at maturity. The Company is required to provide an interest rate hedge for 50% of any term loansoutstanding after January 1, 2015. Under the Credit Facility, the effective interest rate for the year ended December 31, 2013 for the revolving loan portion was2.41%. Under the Prior Credit Facility, the effective interest rate for the year ended December 31, 2012 was 2.42%.The Credit Facility provides that the Company will be required to maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of notless than 1.1:1. The Company will also be required to maintain minimum EBITDA (as defined in the Credit Agreement) of $80.0 million on December 31,2013, which increases to $90.0 million on December 31, 2014, and $100.0 million on December 31, 2015. The Company must also maintain a MaximumTotal Leverage Ratio (as defined in the Credit Agreement) of 2.25:1 on December 31, 2013, which requirement decreases to 2.0:1 on December 31, 2014, and1.75:1 on December 31, 2015. The Company was in compliance with all of these requirements at December 31, 2013.The Credit Facility contains typical affirmative and negative covenants, including covenants that limit or restrict the ability of the Company and theguarantors to: incur certain additional indebtedness; make certain loans, investments or guarantees; pay dividends; make certain asset sales; incur certainliens or other encumbrances; conduct certain transactions with affiliates and enter into certain corporate transactions.The Credit Facility also contains customary events of default, including upon an acquisition or change of control or upon a change in the business andassets of the Company or a Guarantor that in each case is reasonably expected to have a material adverse effect on the Company or a Guarantor. If an event ofdefault occurs and is continuing under the Credit Facility, the Lenders may, among other things, terminate their commitments and require immediaterepayment of all amounts owed by the Company.Bank indebtedness includes the following: As at December 31, 2013 2012 Revolving Term Loan $— $11,000 Total amounts drawn and available under the Credit Facility at December 31, 2013 were $nil and $200.0 million, respectively (December 31, 2012 —$11.0 million and $99.0 million, respectively). 109Table of ContentsAs at December 31, 2013, the Company did not have any letters of credit and advance payment guarantees outstanding (December 31, 2012 — $nil),under the Credit Facility.Wells Fargo Foreign Exchange FacilityUnder the New Credit Facility, the Company is able to purchase foreign currency forward contracts and/or other swap arrangements. The settlementrisk on its foreign currency forward contracts was $0.4 million at December 31, 2013 as the notional value exceeded the fair value of the forward contracts. Asat December 31, 2013, the Company has $23.6 million of such arrangements outstanding.Bank of Montreal FacilitiesAs at December 31, 2013, the Company has available a $10.0 million facility (December 31, 2012 — $10.0 million) with the Bank of Montreal for usesolely in conjunction with the issuance of performance guarantees and letters of credit fully insured by EDC (the “Bank of Montreal Facility”). As atDecember 31, 2013, the Company has letters of credit and advance payment guarantees outstanding of $0.3 million (2012 — $0.9 million) under the Bank ofMontreal Facility.12. Commitments(a) The Company’s lease commitments consist of rent and equipment under operating leases. The Company accounts for any incentives provided overthe term of the lease. Total minimum annual rental payments to be made by the Company as at December 31, 2013 for each of the years ended December 31,are as follows: Operating Leases Capital Leases 2014 $6,454 $2 2015 1,537 — 2016 695 — 2017 533 — 2018 533 — Thereafter 314 — $10,066 $2 Rent expense was $6.5 million for 2013 (2012 — $6.2 million, 2011 — $4.9 million) net of sublease rental of $nil (2012 —$nil, 2011 — less than$0.1 million).Recorded in the accrued liabilities balance as at December 31, 2013 is $1.7 million (December 31, 2012 — $2.4 million) related to accrued rent andlease inducements being recognized as an offset to rent expense over the term of the respective leases.Purchase obligations under long-term supplier contracts as at December 31, 2013 were $11.8 million (December 31, 2012 — $12.1 million).(b) As at December 31, 2013 the Company did not have any letters of credit and advance payment guarantees outstanding (December 31, 2012 — $nil),under the Credit Facility. As at December 31, 2013 the Company had letters of credit and advance payment guarantees outstanding of $0.3 million ascompared to $0.9 million as at December 31, 2012, under the Bank of Montreal Facility.(c) The Company compensates its sales force with both fixed and variable compensation. Commissions on the sale or lease of the Company’s theatersystems are payable in graduated amounts from the time of collection of the customer’s first payment to the Company up to the collection of the customer’s lastinitial payment. At December 31, 2013, $1.5 million (December 31, 2012—$1.8 million) of commissions have been accrued and will be payable in futureperiods. 110Table of Contents13. Contingencies and GuaranteesThe Company is involved in lawsuits, claims, and proceedings, including those identified below, which arise in the ordinary course of business. Inaccordance with the Contingencies Topic of the FASB ASC, the Company will make a provision for a liability when it is both probable that a loss has beenincurred and the amount of the loss can be reasonably estimated. The Company believes it has adequate provisions for any such matters. The Companyreviews these provisions in conjunction with any related provisions on assets related to the claims at least quarterly and adjusts these provisions to reflect theimpacts of negotiations, settlements, rulings, advice of legal counsel and other pertinent information related to the case. Should developments in any of thesematters outlined below cause a change in the Company’s determination as to an unfavorable outcome and result in the need to recognize a material provision,or, should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect on theCompany’s results of operations, cash flows, and financial position in the period or periods in which such a change in determination, settlement or judgmentoccurs.The Company expenses legal costs relating to its lawsuits, claims and proceedings as incurred.(a) In March 2005, the Company, together with Three-Dimensional Media Group, Ltd. (“3DMG”), filed a complaint in the U.S. District Court for theCentral District of California, Western Division, against In-Three, Inc. (“In-Three”) alleging patent infringement. On March 10, 2006, the Company and In-Three entered into a settlement agreement settling the dispute between the Company and In-Three. Despite the settlement reached between the Company and In-Three, co-plaintiff 3DMG refused to dismiss its claims against In-Three. Accordingly, the Company and In-Three moved jointly for a motion to dismiss theCompany’s and In-Three’s claims. On August 24, 2010, the Court dismissed all of the claims pending between the Company and In-Three, thus dismissingthe Company from the litigation.On May 15, 2006, the Company initiated arbitration against 3DMG before the International Centre for Dispute Resolution in New York (the “ICDR”),alleging breaches of the license and consulting agreements between the Company and 3DMG. On June 15, 2006, 3DMG filed an answer denying any breachesand asserting counterclaims that the Company breached the parties’ license agreement. On June 21, 2007, the ICDR unanimously denied 3DMG’s Motion forSummary Judgment filed on April 11, 2007 concerning the Company’s claims and 3DMG’s counterclaims. The proceeding was suspended on May 4, 2009due to failure of 3DMG to pay fees associated with the proceeding. The proceeding was further suspended on October 11, 2010 pending resolution ofreexamination proceedings currently pending involving one of 3DMG’s patents. The Company will continue to pursue its claims vigorously and believes thatall allegations made by 3DMG are without merit. The Company further believes that the amount of loss, if any, suffered in connection with the counterclaimswould not have a material impact on the financial position or results of operations of the Company, although no assurance can be given with respect to theultimate outcome of the arbitration.(b) In January 2004, the Company and IMAX Theatre Services Ltd., a subsidiary of the Company, commenced an arbitration seeking damages beforethe International Court of Arbitration of the International Chambers of Commerce (the “ICC”) with respect to the breach by Electronic Media Limited (“EML”)of its December 2000 agreement with the Company. In June 2004, the Company commenced a related arbitration before the ICC against EML’s affiliate, E-CityEntertainment (I) PVT Limited (“E-City”), seeking damages as a result of E-City’s breach of a September 2000 lease agreement. An arbitration hearing tookplace in November 2005 against E-City which considered all claims by the Company. On February 1, 2006, the ICC issued an award on liability findingunanimously in the Company’s favor on all claims. Further hearings took place in July 2006 and December 2006. On August 24, 2007, the ICC issued anaward unanimously in favor of the Company in the amount of $9.4 million, consisting of past and future rents owed to the Company under its leaseagreements, plus interest and costs. In the award, the ICC upheld the validity and enforceability of the Company’s theater system contract. The Companythereafter submitted its application to the arbitration panel for interest and costs. On March 27, 2008, the arbitration panel issued a final award in favor of theCompany in the amount of $11.3 million, plus an additional $2,512 each day in interest from October 1, 2007 until the date the award is paid, which theCompany is seeking to enforce and collect in full. In July 2008, E-City commenced a proceeding in Mumbai, India seeking an order that the ICC award maynot be recognized in India. The Company has opposed that application on a number of grounds and seeks to have the ICC award recognized in India. OnJune 24, 2011, the Company commenced an application to the Ontario Superior Court of Justice for recognition of the final award. On December 2, 2011, theOntario court issued an order recognizing the final award and requiring E-City to pay the Company $30,000 to cover the costs of the application. OnJanuary 18, 2012, the Company filed an application in New York State Supreme Court seeking recognition of the Ontario order in New York. On April 11,2012, the New York court issued an order granting the Company’s application leading to an entry of $15.5 million judgment in favor of the Company onMay 4, 2012. On January 30, 2013, the Company filed an action in the New York Supreme Court seeking to collect the amount due under the New Yorkjudgment from certain entities and individuals affiliated with E-City. On June 13, 2013, the Bombay High Court ruled that it has jurisdiction over theproceeding but on November 19, 2013, the Supreme Court of India stayed proceedings in the High Court pending Supreme Court review of the High Court’sruling. The defendants in the New York action have answered and objected to the Company’s petition, and they have moved to dismiss for improper service ofprocess. The New York Court heard oral arguments on August 20, 2013 and has taken the matter under advisement. 111Table of Contents(c) The Company and certain of its officers and directors were named as defendants in eight purported class action lawsuits filed between August 11,2006 and September 18, 2006, alleging violations of U.S. federal securities laws. These eight actions were filed in the U.S. District Court for the SouthernDistrict of New York (the “Court”). On January 18, 2007, the Court consolidated all eight class action lawsuits and appointed Westchester CapitalManagement, Inc. as the lead plaintiff and Abbey Spanier Rodd & Abrams, LLP as lead plaintiff’s counsel. On October 2, 2007, plaintiffs filed aconsolidated amended class action complaint. The amended complaint, brought on behalf of shareholders who purchased the Company’s common stock onthe NASDAQ between February 27, 2003 and July 20, 2007 (the “U.S. Class”), alleges primarily that the defendants engaged in securities fraud bydisseminating materially false and misleading statements during the class period regarding the Company’s revenue recognition of theater system installations,and failing to disclose material information concerning the Company’s revenue recognition practices. The amended complaint also addedPricewaterhouseCoopers LLP, the Company’s auditors, as a defendant. On April 14, 2011, the Court issued an order appointing The Merger Fund as the leadplaintiff and Abbey Spanier Rodd & Abrams, LLP as lead plaintiff’s counsel. On November 2, 2011, the parties entered into a memorandum ofunderstanding containing the terms and conditions of a settlement of this action. On January 26, 2012, the parties executed and filed with the Court a formalstipulation of settlement and proposed form of notice to the class, which the Court preliminarily approved on February 1, 2012. Under the terms of thesettlement, members of the U.S. Class who did not opt out of the settlement will release defendants from liability for all claims that were alleged in this actionor could have been alleged in this action or any other proceeding (including the action in Canada as described in (d) of this note (the “Canadian Action”)relating to the purchase of IMAX securities on the NASDAQ from February 27, 2003 and July 20, 2007 or the subject matter and facts relating to this action.As part of the settlement and in exchange for the release, defendants will pay $12.0 million to a settlement fund which amount will be funded by the carriers ofthe Company’s directors and officers insurance policy and by PricewaterhouseCoopers LLP. On March 26, 2012, the parties executed and filed with theCourt an amended formal stipulation of settlement and proposed form of notice to the class, which the court preliminarily approved on March 28, 2012. OnJune 20, 2012, the Court issued an order granting final approval of the settlement. The settlement is conditioned on the Company’s receipt of an order from thecourt in the Canadian Action, the Ontario Superior Court of Justice, (the “Canadian Court”) excluding from the class in the Canadian Action every member ofthe class in both actions who has not opted out of the U.S. settlement. A hearing on the motion for the order occurred on July 30, 2012 before the CanadianCourt and on March 19, 2013, the Canadian Court issued a decision granting the Company’s motion to exclude from the class in the Canadian Action everymember of the classes in both actions who has not opted out of the U.S. settlement. However, no final order will be granted by the Court until the plaintiffs inthe Canadian Action have exhausted their appeals.(d) A class action lawsuit was filed on September 20, 2006 in the Canadian Court against the Company and certain of its officers and directors, allegingviolations of Canadian securities laws. This lawsuit was brought on behalf of shareholders who acquired the Company’s securities between February 17,2006 and August 9, 2006. The lawsuit seeks $210.0 million in compensatory and punitive damages, as well as costs. For reasons released December 14,2009, the Canadian Court granted leave to the plaintiffs to amend their statement of claim to plead certain claims pursuant to the Securities Act (Ontario)against the Company and certain individuals and granted certification of the action as a class proceeding. These are procedural decisions, and do not containany conclusions binding on a judge at trial as to the factual or legal merits of the claim. Leave to appeal those decisions was denied. The Company believes theallegations made against it in the statement of claim are meritless and will vigorously defend the matter, although no assurance can be given with respect to theultimate outcome of such proceedings. The Company’s directors’ and officers’ insurance policy provides for reimbursement of costs and expenses incurred inconnection with this lawsuit as well as potential damages awarded, if any, subject to certain policy limits, exclusions and deductibles.(e) On June 26, 2013, the Company filed suit against GDC Technology (USA) LLC and certain of its affiliates (collectively, “GDC”) in the U.S.District Court for the Central District of California alleging trade secret misappropriation, unjust enrichment and unfair competition and seeking injunctiverelief, compensatory damages, and punitive damages. This action is based on GDC’s commercial exploitation of large format digital theater projection systemand film conversion technologies, which the lawsuit alleges were stolen from the Company by its former employee, Gary Tsui, and then provided by Tsui tovarious technology companies in China. The Company’s action against GDC alleges that GDC is now knowingly and actively using these trade secrets andmarketing large format film projection systems and conversion technology that the Company is informed and believes were derived from and incorporate thetrade secrets stolen by Tsui. On August 12, 2013, in light of the complicating effects of the interwoven corporate relationships among the GDC defendants onfederal diversity jurisdiction, the Company voluntarily dismissed the federal court action and filed a complaint in the Los Angeles County Superior Courtalleging the same set of operative facts and same causes of action that had been contained in the District Court action. GDC has been served with the lawsuit,but has not yet filed its response. The lawsuit is at a very early stage, and the Company cannot predict the timing or outcome of this matter at this time. 112Table of Contents(f) The Company is also involved in litigation against Gary Tsui (“Tsui”) and related parties in both Canada and China based on Tsui’s theft and useof the Company’s trade secrets. The Company filed a lawsuit against Tsui and other related individuals and entities in the Ontario Superior Court of Justiceon December 8, 2009, through which the Company sought injunctive relief to prohibit Tsui from disclosing or using the Company’s confidential andproprietary information and from competing with the Company. The Company is also seeking compensatory and punitive damages. The Ontario Courtawarded the injunctive relief sought by the Company on December 22, 2009. On April 30, 2013, a warrant was issued for Tsui’s arrest based on his refusal tocomply with the orders of the Ontario court, including with respect to the continued use of the Company’s trade secrets. The Ontario action is to proceed totrial in mid-2014, though all of Tsui’s defenses were stricken by the Ontario court in a January 2012 contempt order. The Company also initiated suits againstTsui and related parties in Beijing No. 1 Intermediate People’s Court in Beijing, China on February 16, 2013 and December 3, 2013, seeking relief similar tothat sought in the Ontario action. The actions in Canada and China remain ongoing.(g) In March 2013, IMAX (Shanghai) Multimedia Technology Co., Ltd. (“IMAX China”), the Company’s wholly-owned subsidiary in China, receivednotice from the Shanghai office of the General Administration of Customs that it had been selected for a customs audit. The Company is unable to assess thepotential impact, if any, of the audit at this time.(h) In addition to the matters described above, the Company is currently involved in other legal proceedings or governmental inquiries which, in theopinion of the Company’s management, will not materially affect the Company’s financial position or future operating results, although no assurance can begiven with respect to the ultimate outcome of any such proceedings.(i) In the normal course of business, the Company enters into agreements that may contain features that meet the definition of a guarantee. TheGuarantees Topic of the FASB ASC defines a guarantee to be a contract (including an indemnity) that contingently requires the Company to make payments(either in cash, financial instruments, other assets, shares of its stock or provision of services) to a third party based on (a) changes in an underlying interestrate, foreign exchange rate, equity or commodity instrument, index or other variable, that is related to an asset, a liability or an equity security of thecounterparty, (b) failure of another party to perform under an obligating agreement or (c) failure of another third party to pay its indebtedness when due.Financial GuaranteesThe Company has provided no significant financial guarantees to third parties.Product WarrantiesThe following summarizes the accrual for product warranties that was recorded as part of accrued liabilities in the consolidated balance sheets: As at December 31, 2013 2012 Balance at the beginning of the year $32 $94 Warranty redemptions (77) (66) Warranties issued 52 53 Revisions — (49) Balance at the end of the year $7 $32 Director/Officer IndemnificationsThe Company’s General By-law contains an indemnification of its directors/officers, former directors/officers and persons who have acted at its requestto be a director/officer of an entity in which the Company is a shareholder or creditor, to indemnify them, to the extent permitted by the Canada BusinessCorporations Act, against expenses (including legal fees), judgments, fines and any amount actually and reasonably incurred by them in connection withany action, suit or proceeding in which the directors and/or officers are sued as a result of their service, if they acted honestly and in good faith with a view tothe best interests of the Company. The nature of the indemnification prevents the Company from making a reasonable estimate of the maximum potentialamount it could be required to pay to counterparties. The Company has purchased directors’ and officers’ liability insurance. No amount has been accrued inthe consolidated balance sheet as at December 31, 2013 and December 31, 2012 with respect to this indemnity. 113Table of ContentsOther Indemnification AgreementsIn the normal course of the Company’s operations, the Company provides indemnifications to counterparties in transactions such as: theater systemlease and sale agreements and the supervision of installation or servicing of the theater systems; film production, exhibition and distribution agreements; realproperty lease agreements; and employment agreements. These indemnification agreements require the Company to compensate the counterparties for costsincurred as a result of litigation claims that may be suffered by the counterparty as a consequence of the transaction or the Company’s breach or non-performance under these agreements. While the terms of these indemnification agreements vary based upon the contract, they normally extend for the life of theagreements. A small number of agreements do not provide for any limit on the maximum potential amount of indemnification; however, virtually all of theCompany’s system lease and sale agreements limit such maximum potential liability to the purchase price of the system. The fact that the maximum potentialamount of indemnification required by the Company is not specified in some cases prevents the Company from making a reasonable estimate of the maximumpotential amount it could be required to pay to counterparties. Historically, the Company has not made any significant payments under such indemnificationsand no amounts have been accrued in the consolidated financial statements with respect to the contingent aspect of these indemnities. 114Table of Contents14. Capital Stock(a) AuthorizedCommon SharesThe authorized capital of the Company consists of an unlimited number of common shares. The following is a summary of the rights, privileges,restrictions and conditions of the common shares.The holders of common shares are entitled to receive dividends if, as and when declared by the directors of the Company, subject to the rights of theholders of any other class of shares of the Company entitled to receive dividends in priority to the common shares.The holders of the common shares are entitled to one vote for each common share held at all meetings of the shareholders.(b) Changes during the YearIn 2013, the Company issued 1,316,347 (2012 — 1,429,685, 2011 — 907,167) common shares pursuant to the exercise of stock options for cashproceeds of $9.0 million (2012 — $8.9 million, 2011 — $7.9 million). In addition, the Company issued 42,461 common shares (net of shares withheld fortax) pursuant to the vesting of RSUs (2012 – nil, 2011 – nil).(c) Stock-Based CompensationThe Company issues stock-based compensation to eligible employees, directors and consultants under the Company’s 2013 Long- Term Incentive Planand the China Long-Term Incentive Plan, as described below. No further awards may be granted under the Company’s Stock Option Plan.On June 11, 2013, the Company’s shareholders approved the IMAX 2013 Long-Term Incentive Plan (“IMAX LTIP”) at the Company’s Annual andSpecial Meeting. Awards to employees, directors and consultants under the IMAX LTIP may consist of stock options, restricted share units (“RSUs”) andother awards.The Company’s Stock Option Plan (“SOP”) which shareholders approved in June 2008, permitted the grant of stock options to employees, directorsand consultants. As a result of the implementation of the IMAX LTIP on June 11, 2013, stock options will no longer be granted under the SOP.A separate stock option plan, the China Long-Term Incentive Plan (the “China LTIP”) was adopted by a subsidiary of the Company in October 2012.The compensation costs recorded in the consolidated statement of operations for these plans were $11.9 million in 2013 (2012 — $13.1 million,2011 — $11.9 million).As at December 31, 2013, the Company has reserved a total of 10,530,723 (December 31, 2012— 13,296,485) common shares for future issuanceunder the SOP and IMAX LTIP. Of the common shares reserved for issuance, there are options in respect of 6,263,121 common shares and RSUs in respectof 264,140 common shares outstanding at December 31, 2013. At December 31, 2013 options in respect of 3,578,006 common shares were vested andexercisable.Stock Option PlanThe Company’s policy is to issue new common shares from treasury to satisfy stock options which are exercised.The Company utilizes a lattice-binomial option-pricing model (“Binomial Model”) to determine the fair value of stock-based payment awards. The fairvalue determined by the Binomial Model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex andsubjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual andprojected employee stock option exercise behaviors. The Binomial Model also considers the expected exercise multiple which is the multiple of exercise price togrant price at which exercises are expected to occur on average. Option-pricing models were developed for use in estimating the value of traded options that haveno vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options have certain characteristics that are significantlydifferent from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, theBinomial Model best provides a fair measure of the fair value of the Company’s employee stock options. 115Table of ContentsAll awards of stock options are made at fair market value of the Company’s common shares on the date of grant. The fair market value of a commonshare on a given date means the higher of the closing price of a common share on the grant date (or the most recent trading date if the grant date is not a tradingdate) on the New York Stock Exchange (“NYSE”), the Toronto Stock Exchange (the “TSX”) and such national exchange, as may be designated by theCompany’s Board of Directors (the “Fair Market Value”). The stock options vest within 5 years and expire 10 years or less from the date granted. The SOPand IMAX LTIP provide that vesting will be accelerated if there is a change of control, as defined in each plan and upon certain conditions.The Company recorded an expense of $8.9 million in 2013 (2012 — $12.4 million, 2011 — $9.4 million) related to stock option grants issued toemployees and directors in the IMAX LTIP and SOP plans. No income tax benefit is recorded in the consolidated statement of operations for these costs. Totalstock-based compensation expense related to non-vested employee stock options not yet recognized at December 31, 2013 and the weighted average period overwhich the awards are expected to be recognized is $14.3 million and 3.0 years respectively (2012 — $20.6 million and 3.6 years, 2011 — $19.9 million and3.1 years).The weighted average fair value of all stock options, granted to employees and directors in 2013 at the measurement date was $7.10 per share (2012 —$7.45 per share, 2011 — $9.07 per share). For the years ended December 31, the following assumptions were used to estimate the average fair value of thestock options: 2013 2012 2011Average risk-free interest rate 1.63% 1.36% 2.61%Expected option life (in years) 4.51 - 4.63 2.89 - 6.26 1.78 - 6.60Expected volatility 40% 50% 50%Annual termination probability 0% - 8.52% 0% - 8.76% 0% - 8.76%Dividend yield 0% 0% 0%Stock options to Non-EmployeesDuring 2013, an aggregate of 2,500 (2012 — 12,500, 2011 — 103,944) stock options to purchase the Company’s common stock with an averageexercise price of $26.28 (2012 — $22.82, 2011 — $27.64) were granted to certain advisors and strategic partners of the Company. These stock optionsgranted have a maximum contractual life of 7 years and vest between one and 5 years. The stock options granted in 2013 were granted under the IMAX LTIP.As at December 31, 2013 non-employee options outstanding amounted to 76,751 stock options (2012 — 120,001, 2011 — 142,251) with a weightedaverage exercise price of $15.67 (2012 — $14.14, 2011 — $12.93). 31,509 stock options (2012 — 35,717, 2011 — 50,500) were exercisable with anaverage weighted exercise price of $12.38 (2012 — $11.57, 2011 — $11.50) and the vested options have an aggregate intrinsic value of $0.5 million(2012 — $0.4 million, 2011 — $0.3 million). The weighted average fair value of stock options granted to non-employees during 2013 at the measurement datewas $11.50 per share (2012 — $11.73 per share, 2011 — $13.75 per share), utilizing a Binomial Model with the following underlying assumptions: Years Ended December 31 2013 2012 2011 Average risk-free interest rate 1.64% 1.28% 2.38% Contractual option life 7 years 7 years 6 years Average expected volatility 40% 50% 50% Dividend yield 0% 0% 0% In 2013, the Company recorded a charge of $0.2 million, (2012 — $0.1 million, 2011 — $0.9 million) to costs and expenses related to revenues –services and selling, general and administrative expenses related to the non-employee stock options. Included in accrued liabilities is an accrual of $0.1 millionfor non-employee stock options (December 31, 2012 — $0.1 million). 116Table of ContentsChina Long-Term Incentive Plan (“CLTIP”)The China LTIP was adopted by a subsidiary of the Company in October 2012. Each stock option issued under the China LTIP represents anopportunity to participate economically in the future growth and value creation of the subsidiary. The China LTIP options issued by the subsidiary (“ChinaOptions”) operate in tandem with options granted to certain employees of the subsidiary under the Company’s Stock Option Plan (“SOP Options”).The China Options vest and become exercisable only upon specified events, including upon the occurrence of a qualified initial public offering or upona change in control on or prior to the fifth anniversary of the grant date. If such a specified event occurs, the China Options vest over a 5 year period beginningon the date of grant. Upon vesting of the China options, the SOP Options are forfeited. The term of the China Options is 7 years. The total stock optionexpense associated with the China Options if a specified event and vesting were to occur is $2.7 million.The SOP Options vest in full if one of the specified events does not occur on or prior to the fifth anniversary of the grant date. Upon vesting of the SOPOptions, the China Options are forfeited.In 2012, an aggregate of 146,623 SOP Options were granted to certain employees in conjunction with the China Options with an average price of$22.39 in accordance with the China LTIP. The SOP Options have a contractual life of 7 years. As at December 31, 2013 there were 146,623 (December 31,2012 – 146,623) outstanding and unvested SOP Options issued under the China LTIP with a weighted average exercise price of $22.39 (December 31, 2012– $22.39). The weighted average fair value of the SOP Options granted in 2012 was $6.96 per share. The total fair value of the SOP Options granted withrespect to the China LTIP was $1.6 million. The Company is recognizing this expense over a 5 year period. If a performance event occurs, the 146,623 SOPOptions issued forfeit immediately and the related charge would be reversed. There were no option awards issued under the China LTIP during 2013.The Company recorded an expense of $0.3 million (2012 – less than $0.1 million, 2011 – nil) related to SOP Options issued under the China LTIP.Stock Option SummaryThe following table summarizes certain information in respect of option activity under the SOP and IMAX LTIP: Weighted Average Exercise Number of Shares Price Per Share 2013 2012 2011 2013 2012 2011 Options outstanding, beginning of year 7,441,068 7,200,721 6,743,272 $18.48 $14.60 $10.79 Granted 375,650 1,833,485 1,547,342 25.29 24.59 28.11 Exercised (1,316,347) (1,429,685) (907,167) 6.81 6.24 8.67 Forfeited (228,190) (154,958) (182,726) 24.55 23.03 18.00 Expired — — — — — — Cancelled (9,060) (8,495) — 30.90 22.07 — Options outstanding, end of period 6,263,121 7,441,068 7,200,721 21.11 18.48 14.60 Options exercisable, end of period 3,578,006 3,480,160 3,467,242 18.56 14.50 9.51 In 2013, the Company cancelled 9,060 stock options from its SOP (2012 — 8,495, 2011 — nil) surrendered by Company employees.As at December 31, 2013, 5,853,070 options were fully vested or are expected to vest with a weighted average exercise price of $20.79, aggregateintrinsic value of $52.9 million and weighted average remaining contractual life of 4.7 years. As at December 31, 2013, options that are exercisable have anintrinsic value of $40.2 million and a weighted average remaining contractual life of 4.5 years. The intrinsic value of options exercised in 2013 was$26.7 million (2012 — $23.4 million, 2011 — $16.4 million). 117Table of ContentsRestricted Share UnitsRSUs have been granted to employees, consultants and directors under the IMAX LTIP. Each RSU represents a contingent right to receive one commonshare and is the economic equivalent of one common share. The grant date fair value of each RSU is equal to the share price of the Company’s stock at thegrant date. The Company recorded an expense of $2.1 million for the year ended December 31, 2013, related to RSU grants issued to employees and directorsin the plan. The annual termination probability assumed for the year ended December 31, 2013, ranged from 0% to 8.52%. In addition, the Company recordedan expense of less than $0.1 million for the year ended December 31, 2013, related to RSU grants issued to certain advisors and strategic partners of theCompany.Total stock-based compensation expense related to non-vested RSU’s not yet recognized at December 31, 2013 and the weighted average period overwhich the awards are expected to be recognized is $4.7 million and 2.9 years. The Company’s actual tax benefits realized for the tax deductions related to thevesting of RSUs was $nil for the year ended December 31, 2013.RSUs granted under the IMAX LTIP vest between one and four years and expire 10 years or less from the date granted. Vesting of the RSUs is subject tocontinued employment or service with the Company.The following table summarizes certain information in respect of RSU activity under the IMAX LTIP: WeightedAverageGrantDate FairValue Number of Awards Per Share RSUs outstanding, beginning of year — $— Granted 322,561 26.16 Vested (46,360) 26.23 Forfeited (12,061) 26.28 RSUs outstanding, end of period 264,140 26.14 Stock Appreciation RightsThere have been no stock appreciation rights (“SARs”) granted since 2007. For the year ended December 31, 2013, 118,000 SARs were cash settled for$2.4 million (2012 — 15,000 SARs were cash settled for $0.3 million). The average exercise price for the settled SARs for the year ended December 31, 2013was $6.86 (2012 — $6.86) per SAR. As at December 31, 2013, no SARS were outstanding (December 31, 2012 — 118,000 SARS outstanding with aweighted average fair value of — $16.23). None of the SARs were forfeited, cancelled, or expired for the years ended December 31, 2013 and 2012. TheCompany accounts for the obligation of these SARs as a liability (December 31, 2013 — nil, December 31, 2012 — $1.9 million), which is classified withinaccrued liabilities. The Company has recorded an expense of $0.4 million for 2013 (2012 — $0.6 million, 2011 — $1.6 million) to selling, general andadministrative expenses related to these SARs. The following assumptions were used for measuring the fair value of the SARs: As at December 31, 2013 2012 Average risk-free interest rate n/a 0.72% Expected option life (in years) n/a 2.17 Expected volatility n/a 50% Annual termination probability n/a 8.52% Dividend yield n/a 0% 118Table of Contents(d) Income per shareReconciliations of the numerator and denominator of the basic and diluted per-share computations are comprised of the following: Years Ended December 31, 2013 2012 2011 Net income from continuing operations applicable to common shareholders $44,424 $41,849 $16,115 Weighted average number of common shares (000’s): Issued and outstanding, beginning of period 66,482 65,053 64,146 Weighted average number of shares issued during the period 669 801 358 Weighted average number of shares used in computing basic earnings per Share 67,151 65,854 64,504 Assumed exercise of stock options and RSUs, net of shares assumed 1,810 2,079 3,355 Weighted average number of shares used in computing diluted earnings per Share 68,961 67,933 67,859 15. Consolidated Statements of Operations Supplemental Information(a) Other RevenuesThe Company enters into theater system arrangements with customers that typically contain customer payment obligations prior to the scheduledinstallation of the theater systems. During the period of time between signing and theater system installation, certain customers each year are unable to, or electnot to, proceed with the theater system installation for a number of reasons, including business considerations, or the inability to obtain certain consents,approvals or financing. Once the determination is made that the customer will not proceed with installation, the customer and/or the Company may terminatethe arrangement by default or by entering into a consensual buyout. In these situations the parties are released from their future obligations under thearrangement, and the initial payments that the customer previously made to the Company are typically not refunded and are recognized as Other Revenues. Inaddition, the Company enters into agreements with customers to terminate their obligations for additional theater system configurations, which were in theCompany’s backlog. Other revenues from settlement arrangements were $0.4 million, $0.7 million and $3.8 million in 2013, 2012 and 2011, respectively.(b) Foreign ExchangeIncluded in selling, general and administrative expenses for the December 31, 2013 is $0.7 million for net foreign exchange losses related to thetranslation of foreign currency denominated monetary assets and liabilities and unhedged foreign exchange contracts as compared to a net gain of $1.2 millionfor the year ended December 31, 2012 and a net gain of $1.5 million for the year ended December 31, 2011, respectively. See note 20(d) for additionalinformation.(c) Collaborative ArrangementsJoint Revenue Sharing ArrangementsIn a joint revenue sharing arrangement, the Company receives a portion of a theater’s box-office and concession revenues, and in some cases a smallupfront or initial payment, in exchange for placing a theater system at the theater operator’s venue. Under joint revenue sharing arrangements, the customer hasthe ability and the right to operate the hardware components or direct others to operate them in a manner determined by the customer. The Company’s jointrevenue sharing arrangements are typically non-cancellable for 10 to 13 years with renewal provisions. Title to equipment under joint revenue sharingarrangements does not transfer to the customer. The Company’s joint revenue sharing arrangements do not contain a guarantee of residual value at the end ofthe term. The customer is required to pay for executory costs such as insurance and taxes and is required to pay the Company for maintenance and extendedwarranty throughout the term. The customer is responsible for obtaining insurance coverage for the theater systems commencing on the date specified in thearrangement’s shipping terms and ending on the date the theater systems are delivered back to the Company. 119Table of ContentsThe Company has signed joint revenue sharing agreements with 38 exhibitors for a total of 645 theater systems, of which 382 theaters were operating asat December 31, 2013, the terms of which are similar in nature, rights and obligations. The accounting policy for the Company’s joint revenue sharingarrangements is disclosed in note 2(m).Amounts attributable to transactions arising between the Company and its customers under joint revenue sharing arrangements are included in Rentalsrevenue and at December 31, 2013 amounted to $64.1 million (2012 — $57.5 million, 2011 - $30.8 million).IMAX DMRIn an IMAX DMR arrangement, the Company transforms conventional motion pictures into the Company’s large screen format, allowing the release ofHollywood content to the IMAX theater network. In a typical IMAX DMR film arrangement, the Company will absorb its costs for the digital re-mastering andthen recoup this cost from a percentage of the gross box-office receipts of the film, which generally range from 10-15%. The Company does not typically holddistribution rights or the copyright to these films.In 2013, the majority of IMAX DMR revenue was earned from the exhibition of 38 IMAX DMR films through the IMAX theater network. Theaccounting policy for the Company’s IMAX DMR arrangements is disclosed in note 2(m).Amounts attributable to transactions arising between the Company and its customers under IMAX DMR arrangements are included in Services revenuesand for December 31, 2013 amounted to $83.5 million (2012 — $78.1 million, 2011 - $50.6 million).Co-Produced Film ArrangementsIn certain film arrangements, the Company co-produces a film with a third party whereby the third party retains the copyright and rights to the film,except that the Company obtains exclusive theatrical distribution rights to the film. Under these arrangements, both parties contribute funding to theCompany’s wholly-owned production company for the production of the film and for associated exploitation costs. Clauses in the film arrangements generallyprovide for the third party to take over the production of the film if the cost of the production exceeds its approved budget or if it appears as though the filmwill not be delivered on a timely basis.As at December 31, 2013, the Company has 4 significant co-produced film arrangements which make up greater than 50% of the VIE total assets andliabilities balance of $5.2 million and 3 other co-produced film arrangements, the terms of which are similar. The accounting policies relating to co-producedfilm arrangements are disclosed in notes 2(a) and 2(m).In 2013, amounts totaling $2.9 million (2012 —$6.1 million, 2011 - $7.5 million) attributable to transactions between the Company and other partiesinvolved in the production of the films have been included in cost and expenses applicable to revenues-services.16. Receivable Provisions, Net of RecoveriesThe following table reflects the Company’s receivable provisions net of recoveries recorded in the consolidated statements of operations: Years Ended December 31, 2013 2012 2011 Accounts receivable provisions, net of recoveries $(35) $606 $333 Financing receivable provisions, net of recoveries 480 (82) 1,237 Receivable provisions, net of recoveries $445 $524 $1,570 120Table of Contents17. Asset Impairments Years Ended December 31, 2013 2012 2011(1) Property, plant and equipment $— $— $20 Total $— $— $20 (1)In January 2014, the Company discontinued the operations of its owned and operated Nyack IMAX theater. The Company has reclassified the Nyackowned and operated theater operations from continuing operations to discontinued operations. As a result, asset impairments of less than $0.1 millionincurred in 2011 has been reclassified to discontinued operations.The Company records asset impairment charges against property, plant and equipment after an assessment of the carrying value of certain groups inlight of their future expected cash flows.18. Consolidated Statements of Cash Flows Supplemental Information(a) Changes in other non-cash operating assets and liabilities are comprised of the following: Years Ended December 31, 2013 2012 2011 Decrease (increase) in: Accounts receivable $(31,032) $4,110 $(7,486) Financing receivables (13,397) (7,349) (14,623) Inventories 1,884 (422) (1,264) Prepaid expenses 231 (706) (294) Commissions and other deferred selling expenses 59 322 382 Insurance recoveries 380 444 978 Other assets (341) (752) (2,357) Increase (decrease) in: Accounts payable 7,238 (8,139) 5,592 Accrued and other liabilities(1) (1,289) (2,266) (31,013) Deferred revenue 2,512 (504) 706 $(33,755) $(15,262) $(49,379) (1)Decrease in accruals and other liabilities for 2013 includes payments of $2.4 million for stock-based compensation (2012 - $0.3 million, 2011 - $23.7million). 121Table of Contents(b) Cash payments made on account of: Years Ended December 31, 2013 2012 2011 Income taxes $1,056 $1,283 $3,349 Interest $315 $1,374 $1,260 (c) Depreciation and amortization are comprised of the following: Years Ended December 31, 2013 2012 2011 Film assets (1) $17,000 $15,515 $12,934 Property, plant and equipment Joint revenue sharing arrangements 11,519 10,125 7,098 Other property, plant and equipment 4,720 4,440 3,992 Other intangible assets 2,854 2,006 465 Other assets 592 532 286 Deferred financing costs 487 170 388 $37,172 $32,788 $25,163 (1)Included in film asset amortization is a charge of $0.2 million (2012 —$0.1 million, 2011 —$0.5 million) relating to changes in estimates based on theultimate recoverability of future films.(d) Write-downs, net of recoveries, are comprised of the following: Years Ended December 31, 2013 2012 2011 Asset impairments Property, plant and equipment(1) $— $— $20 Other charges (recoveries) Accounts receivables (35) 606 333 Financing receivables 480 (82) 1,237 Inventories(2) 444 898 — Impairment of available-for-sale investment — 150 — Property, plant and equipment(3) 384 18 356 Other intangible assets 63 11 — Other assets — 6 — $1,336 $1,607 $1,946 Inventory charges Recorded in costs and expenses applicable to revenues - product & equipment sales $274 $795 $— Recorded in costs and expenses applicable to revenues - services 170 103 — $444 $898 $— (1)In January 2014, the Company discontinued the operations of its owned and operated Nyack IMAX theater. The Company has reclassified the Nyackowned and operated theater operations from continuing operations to discontinued operations. As a result, asset impairments of less than $0.1 millionincurred in 2011 has been reclassified to discontinued operations. 122Table of Contents(2)In 2013, the Company recorded a charge of $0.5 million (2012 — $0.9 million, 2011 — $nil, respectively) in costs and expenses applicable torevenues, primarily for its film-based projector inventories. Specifically, IMAX systems includes an inventory charge of $0.3 million (2012 — $0.8million, 2011 — $nil). Theater system maintenance includes inventory write-downs of $0.2 million (2012 — $0.1 million, 2011 — $nil).(3)The Company disposed of assets that no longer meet capitalization requirements as the assets were no longer in use. No cash was received for theseassets.19. Segmented InformationThe Company has seven reportable segments identified by category of product sold or service provided: IMAX systems; theater system maintenance;joint revenue sharing arrangements; film production and IMAX DMR; film distribution; film post-production; and other. The IMAX systems segmentdesigns, manufactures, sells or leases IMAX theater projection system equipment. The theater system maintenance segment maintains IMAX theater projectionsystem equipment in the IMAX theater network. The joint revenue sharing arrangements segment provides IMAX theater projection system equipment to anexhibitor in exchange for a share of the box-office and concession revenues. The film production and IMAX DMR segment produces films and performs filmre-mastering services. The film distribution segment distributes films for which the Company has distribution rights. The film post-production segmentprovides film post-production and film print services. The Company refers to all theaters using the IMAX theater system as “IMAX theaters”. The othersegment includes certain IMAX theaters that the Company owns and operates, camera rentals and other miscellaneous items. The accounting policies of thesegments are the same as those described in note 2.Management, including the Company’s Chief Executive Officer (“CEO”) who is the Company’s Chief Operating Decision Maker (as defined in theSegment Reporting Topic of the FASB ASC), assesses segment performance based on segment revenues, gross margins and film performance. Selling, generaland administrative expenses, research and development costs, amortization of intangibles, receivables provisions (recoveries), write-downs net of recoveries,interest income, interest expense and tax (provision) recovery are not allocated to the segments.Transactions between the film production and IMAX DMR segment and the film post-production segment are valued at exchange value. Inter-segmentprofits are eliminated upon consolidation, as well as for the disclosures below.In January 2014, the Company discontinued the operations of its owned and operated Nyack IMAX theater. The Company has reclassified the Nyackowned and operated theater operations from continuing operations to discontinued operations. As a result, the respective prior periods’ figures have beenreclassified to conform to the current year’s presentation.Transactions between the other segments are not significant. 123Table of Contents(a) Operating Segments Years Ended December 31, 2013 2012 2011 Revenue(1) IMAX theater systems IMAX systems $80,189 $83,405 $93,200 Theater system maintenance 31,978 28,629 24,840 Joint revenue sharing arrangements 64,130 57,526 30,764 176,297 169,560 148,804 Films Production and IMAX DMR 83,496 78,050 50,592 Distribution 7,770 14,222 16,074 Post-production 9,192 7,904 8,235 100,458 100,176 74,901 Other 11,182 13,019 11,393 Total $287,937 $282,755 $235,098 Gross margins IMAX theater systems IMAX systems(2)(4) $49,040 $50,245 $56,929 Theater system maintenance(2) 12,096 10,970 9,437 Joint revenue sharing arrangements(3)(4) 44,565 37,308 17,605 105,701 98,523 83,971 Films Production and IMAX DMR(4) 56,088 49,355 23,574 Distribution(4) 1,371 2,356 3,025 Post-production 1,341 1,954 2,985 58,800 53,665 29,584 Other 102 1,057 510 Total $164,603 $153,245 $114,065 124Table of Contents Years Ended December 31, 2013 2012 2011 Depreciation and amortization IMAX systems $3,287 $2,946 $1,770 Theater systems maintenance 141 212 184 Joint revenue sharing arrangements 13,535 11,836 7,939 Films Production and IMAX DMR 16,298 14,471 12,843 Distribution 1,048 1,631 980 Post-production 424 608 590 Other 347 172 156 Corporate and other non-segment specific assets 2,092 912 701 Total $37,172 $32,788 $25,163 Years Ended December 31, 2013 2012 2011 Asset impairments and write-downs, net of recoveries IMAX systems $1,109 $1,480 $1,915 Theater systems maintenance 188 103 — Joint revenue sharing arrangements 39 24 12 Films Production and IMAX DMR — — — Other — — 19 Total $1,336 $1,607 $1,946 Years Ended December 31, 2013 2012 2011 Purchase of property, plant and equipment IMAX systems $6,181 $2,958 $1,076 Theater system maintenance 130 36 10 Joint revenue sharing arrangements 22,775 23,257 33,290 Films Production and IMAX DMR 408 1,175 1,150 Distribution — 178 49 Post-production 2,185 — 638 Other 2,036 — 719 Corporate and other non-segment specific assets 2,076 1,708 1,886 Total $35,791 $29,312 $38,818 125Table of Contents As at December 31, 2013 2012 Assets IMAX systems(5) $170,719 $153,201 Theater systems maintenance(5) 16,619 14,632 Joint revenue sharing arrangements(5) 153,399 125,602 Films Production and IMAX DMR 22,315 17,653 Distribution 8,675 6,790 Post-production 5,351 3,694 Other 7,645 3,142 Corporate and other non-segment specific assets 96,422 97,158 Total $481,145 $421,872 (1)The Company’s two largest customers as at December 31, 2013 collectively represent 19.9% of total revenues (2012 – 15.9%, 2011 – 17.4%).(2)In 2013, the Company recorded a charge of $0.5 million (2012 – $0.9 million, 2011 – $nil, respectively) in costs and expenses applicable to revenues,primarily for its film-based projector inventories. Specifically, IMAX systems includes an inventory charge of $0.3 million (2012 – $0.8 million, 2011– $nil). Theater system maintenance includes inventory write-downs of $0.2 million (2012 – $0.1 million, 2011 – $nil).(3)During 2013, the Company signed an amending agreement governing one of its joint revenue sharing arrangements which increased the length of the termfor all IMAX theater systems under that arrangement from 10 to 13 years. As a result, the Company adjusted the estimated useful life of its IMAXdigital projection systems in use for those joint revenue sharing theaters, on a prospective basis, to reflect the change in term from 10 years to 13 years.This has resulted in decreased depreciation expense of $0.7 million in 2013 as the theater systems will now be depreciated over a longer estimated usefullife.(4)IMAX systems include marketing and commission costs of $2.5 million, $2.7 million and $2.4 million in 2013, 2012 and 2011, respectively. Jointrevenue sharing arrangements segment margins include advertising, marketing, and commission costs of $3.6 million, $3.4 million and $5.4 million in2013, 2012 and 2011, respectively. Production and DMR segment margins include marketing costs of $4.2 million, $3.3 million and $3.8 million in2013, 2012 and 2011, respectively. Distribution segment margins include marketing costs of $0.4 million, $1.5 million and $1.9 million in 2013,2012 and 2011, respectively.(5)Goodwill is allocated on a relative fair market value basis to the IMAX systems segment, theater system maintenance segment and joint revenue sharingsegment. 126Table of Contents(b) Geographic InformationRevenue by geographic area is based on the location of the customer. Revenue related to IMAX DMR is presented based upon the geographic location ofthe theaters that exhibit the re-mastered films. IMAX DMR revenue is generated through contractual relationships with studios and other third parties and thesemay not be in the same geographical location as the theater. Years Ended December 31, 2013 2012 2011 Revenue United States $125,166 $126,547 $108,666 Canada 11,049 19,109 21,232 Greater China 56,480 44,922 33,265 Western Europe 26,000 26,309 18,895 Asia (excluding Greater China) 30,451 28,899 22,186 Russia & the CIS 19,600 20,130 16,157 Latin America 13,017 9,419 6,051 Rest of the World 6,174 7,420 8,646 Total $287,937 $282,755 $235,098 No single country in the Rest of the World, Western Europe or Asia (excluding Greater China) classifications comprise more than 5% of total revenue. As at December 31, 2013 2012 Property, plant and equipment United States $60,285 $55,658 Canada 23,687 21,779 Greater China 32,958 24,764 Asia (excluding Greater China) 9,200 7,134 Western Europe 6,012 3,556 Rest of the World 705 719 Total $132,847 $113,610 127Table of Contents20. Financial Instruments(a) Financial InstrumentsThe Company maintains cash with various major financial institutions. The Company’s cash is invested with highly rated financial institutions.The Company’s accounts receivables and financing receivables are subject to credit risk. The Company’s accounts receivable and financing receivablesare concentrated with the theater exhibition industry and film entertainment industry. To minimize the Company’s credit risk, the Company retains title tounderlying theater systems leased, performs initial and ongoing credit evaluations of its customers and makes ongoing provisions for its estimate of potentiallyuncollectible amounts. The Company believes it has adequately provided for related exposures surrounding receivables and contractual commitments.(b) Fair Value MeasurementsThe carrying values of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities due within one yearapproximate fair values due to the short-term maturity of these instruments. The Company’s other financial instruments at December 31, are comprised of thefollowing: As at December 31, 2013 As at December 31, 2012 CarryingAmount EstimatedFair Value CarryingAmount EstimatedFair Value Net financed sales receivable $93,493 $92,043 $81,148 $78,933 Net investment in sales-type leases $13,617 $13,214 $13,045 $13,513 Available-for-sale investment $1,000 $1,000 $1,350 $1,350 Foreign exchange contracts — designated forwards $(421) $(421) $297 $297 Foreign exchange contracts — non-designated forwards $— $— $— $— Borrowings under the Prior Credit Facility $— $— $(11,000) $(11,000) The carrying value of borrowings under the Credit Facility approximates fair value as the interest rates offered under the Credit Facility are close toDecember 31, 2013 and 2012 market rates for the Company for debt of the same remaining maturities (Level 2 input in accordance with the Fair ValueMeasurements Topic of the FASB ASC hierarchy) as at December 31, 2013 and 2012, respectively.The estimated fair values of the net financed sales receivable and net investment in sales-type leases are estimated based on discounting future cashflows at currently available interest rates with comparable terms (Level 2 input in accordance with the Fair Value Measurements Topic of the FASB ASChierarchy) as at December 31, 2013 and 2012, respectively.The fair value of the Company’s available-for-sale investment is determined using the present value of expected cash flows based on projected earningsand other information readily available from the business venture (Level 3 input in accordance with the Fair Value Measurements Topic of the FASB ASChierarchy) as at December 31, 2013 and 2012, respectively. The discounted cash flow valuation technique is based on significant unobservable inputs ofrevenue and expense projections, appropriately risk weighted, as the investment is in a start-up entity. The significant unobservable inputs used in the fairvalue measurement of the Company’s available-for-sale investment are long-term revenue growth and pretax operating margin. A significant increase (decrease)in any of those inputs in isolation would result in a lower or higher fair value measurement.The fair value of foreign currency derivatives are determined using quoted prices in active markets (Level 2 input in accordance with the Fair ValueMeasurements Topic of the FASB ASC hierarchy) as at December 31, 2013 and 2012, respectively. These identical instruments are traded on a closedexchange. 128Table of ContentsThere were no significant transfers between Level 1 and Level 2 during the year ended December 31, 2013 or 2012. When a determination is made toclassify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.The table below sets forth a summary of changes in the fair value of the Company’s available-for-sale investment measured at fair value on a recurring basisusing significant unobservable inputs (Level 3) during the period: Available For SaleInvestments 2013 2012 Beginning balance, January 1, $1,350 $1,012 Transfers into/out of Level 3 — — Total gains or losses (realized/unrealized) Included in earnings — — Included in other comprehensive income (350) 338 Purchases, issuances, sales and settlements — — Ending balance, December 31, $1,000 $1,350 The amount of total gains or losses for the period included in earnings attributable to thechange in unrealized gains or losses relating to assets still held at the reporting date $— $(150) There were no transfers in or out of the Company’s level 3 assets during the year ended December 31, 2013.In the year ended December 31, 2012, the Company recognized a $0.2 million other-than-temporary impairment of its available-for-sale investment, in“Impairment of available-for-sale investment” in the consolidated statement of operations, as the value is not expected to recover based on the length of time andextent to which the market value has been less than cost.(c) Financing ReceivablesThe Company’s net investment in leases and its net financed sale receivables are subject to the disclosure requirements of ASC 310 “Receivables”. Dueto differing risk profiles of its net investment in leases and its net financed sales receivables, the Company views its net investment in leases and its netfinanced sale receivables as separate classes of financing receivables. The Company does not aggregate financing receivables to assess impairment.The Company monitors the credit quality of each customer on a frequent basis through collections and aging analyses. The Company also holdsmeetings monthly in order to identify credit concerns and whether a change in credit quality classification is required for the customer. A customer mayimprove in their credit quality classification once a substantial payment is made on overdue balances or the customer has agreed to a payment plan with theCompany and payments have commenced in accordance to the payment plan. The change in credit quality indicator is dependent upon management approval.The Company classifies its customers into four categories to indicate the credit quality worthiness of its financing receivables for internal purposes only:Good standing — Theater continues to be in good standing with the Company as the client’s payments and reporting are up-to-date.Credit Watch — Theater operator has begun to demonstrate a delay in payments, has been placed on the Company’s credit watch list for continuedmonitoring, but active communication continues with the Company. Depending on the size of outstanding balance, length of time in arrears and other factors,transactions may need to be approved by management. These financing receivables are considered to be in better condition than those receivables related totheaters in the “Pre-approved transactions” category, but not in as good of condition as those receivables in “Good standing.”Pre-approved transactions only — Theater operator is demonstrating a delay in payments with little or no communication with the Company. All serviceor shipments to the theater must be reviewed and approved by management. These financing receivables are considered to be in better condition than thosereceivables related to theaters in the “All transactions suspended” category, but not in as good of condition as those receivables in “Credit Watch.” Dependingon the individual facts and circumstances of each customer, finance income recognition may be suspended if management believes the receivable to beimpaired. 129Table of ContentsAll transactions suspended — Theater is severely delinquent, non-responsive or not negotiating in good faith with the Company. Once a theater isclassified as “All transactions suspended” the theater is placed on nonaccrual status and all revenue recognitions related to the theater are stopped.The following table discloses the recorded investment in financing receivables by credit quality indicator: As at December 31, 2013 As at December 31, 2012 MinimumLeasePayments FinancedSalesReceivables Total MinimumLeasePayments FinancedSalesReceivables Total In good standing $12,318 $89,017 $101,335 $11,508 $69,310 $80,818 Credit Watch 420 3,895 4,315 — 10,930 10,930 Pre-approved transactions 288 — 288 467 293 760 Transactions suspended 1,397 817 2,214 2,200 681 2,881 $14,423 $93,729 $108,152 $14,175 $81,214 $95,389 While recognition of finance income is suspended, payments received by a customer are applied against the outstanding balance owed. If payments aresufficient to cover any unreserved receivables, a recovery of provision taken on the billed amount, if applicable, is recorded to the extent of the residual cashreceived. Once the collectibility issues are resolved and the customer has returned to being in good standing, the Company will resume recognition of financeincome.The Company’s investment in financing receivables on nonaccrual status is as follows: As at December 31, 2013 As at December 31, 2012 RecordedInvestment RelatedAllowance RecordedInvestment RelatedAllowance Net investment in leases $1,684 $(606) $2,666 $(1,130) Net financed sales receivables 817 (236) 1,322 (66) Total $2,501 $(842) $3,988 $(1,196) The Company considers financing receivables with aging between 60-89 days as indications of theaters with potential collection concerns. TheCompany will begin to focus its review on these financing receivables and increase its discussions internally and with the theater regarding payment status.Once a theater’s aging exceeds 90 days, the Company’s policy is to review and assess collectibility on theater’s past due accounts. Over 90 days past due isused by the Company as an indicator of potential impairment as invoices up to 90 days outstanding could be considered reasonable due to the time requiredfor dispute resolution or for the provision of further information or supporting documentation to the customer. 130Table of ContentsThe Company’s aged financing receivables are as follows: As at December 31, 2013 AccruedandCurrent 30-89Days 90+Days BilledFinancingReceivables RelatedUnbilledRecordedInvestment TotalRecordedInvestment RelatedAllowances RecordedInvestmentNet ofAllowances Net investment in leases $444 $218 $841 $1,503 $12,920 $14,423 $(806) $13,617 Net financed sales receivables 2,502 1,211 3,018 6,731 86,998 93,729 (236) 93,493 Total $2,946 $1,429 $3,859 $8,234 $99,918 $108,152 $(1,042) $107,110 As at December 31, 2012 AccruedandCurrent 30-89Days 90+Days BilledFinancingReceivables RelatedUnbilledRecordedInvestment TotalRecordedInvestment RelatedAllowances RecordedInvestmentNet ofAllowances Net investment in leases $144 $202 $1,240 $1,586 $12,589 $14,175 $(1,130) $13,045 Net financed sales receivables 1,063 670 1,267 3,000 78,214 81,214 (66) 81,148 Total $1,207 $872 $2,507 $4,586 $90,803 $95,389 $(1,196) $94,193 The Company’s recorded investment in past due financing receivables for which the Company continues to accrue finance income is as follows: As at December 31, 2013 AccruedandCurrent 30-89Days 90+Days BilledFinancingReceivables RelatedUnbilledRecordedInvestment RelatedAllowance RecordedInvestmentPast Dueand Accruing Net investment in leases $168 $108 $205 $481 $4,865 $(200) $5,146 Net financed sales receivables 450 469 2,056 2,975 19,282 — 22,257 Total $618 $577 $2,261 $3,456 $24,147 $(200) $27,403 As at December 31, 2012 AccruedandCurrent 30-89Days 90+Days BilledFinancingReceivables RelatedUnbilledRecordedInvestment RelatedAllowance RecordedInvestmentPast Dueand Accruing Net investment in leases $11 $59 $23 $93 $1,449 $— $1,542 Net financed sales receivables 223 382 864 1,469 16,173 — 17,642 Total $234 $441 $887 $1,562 $17,622 $ — $19,184 131Table of ContentsThe Company considers financing receivables to be impaired when it believes it to be probable that it will not recover the full amount of principal orinterest owing under the arrangement. The Company uses its knowledge of the industry and economic trends, as well as its prior experiences to determine theamount recoverable for impaired financing receivables. The following table discloses information regarding the Company’s impaired financing receivables: Impaired Financing ReceivablesFor the Year Ended December 31, 2013 RecordedInvestment UnpaidPrincipal RelatedAllowance AverageRecordedInvestment InterestIncomeRecognized Recorded investment for which there is a related allowance: Net financed sales receivables $535 $283 $(236) $545 $34 Recorded investment for which there is no related allowance: Net financed sales receivables — — — — — Total recorded investment in impaired loans: Net financed sales receivables $535 $283 $(236) $545 $34 Impaired Financing ReceivablesFor the Year Ended December 31, 2012 RecordedInvestment UnpaidPrincipal RelatedAllowance AverageRecordedInvestment InterestIncomeRecognized Recorded investment for which there is a related allowance: Net financed sales receivables $187 $220 $(66) $201 $— Recorded investment for which there is no related allowance: Net financed sales receivables 377 13 — 479 22 Total recorded investment in impaired loans: Net financed sales receivables $564 $233 $(66) $680 $22 The Company’s activity in the allowance for credit losses for the period and the Company’s recorded investment in financing receivables is as follows: Year Ended December 31, 2013 Net Investmentin Leases Net FinancedSales Receivables Allowance for credit losses: Beginning balance $1,130 $66 Charge-offs (624) — Provision 300 170 Ending balance $806 $236 Ending balance: individually evaluated for impairment $806 $236 Financing receivables: Ending balance: individually evaluated for impairment $14,423 $93,729 132Table of Contents Year Ended December 31, 2012 Net Investmentin Leases Net FinancedSales Receivables Allowance for credit losses: Beginning balance $1,833 $316 Charge-offs (1,019) (109)(1) Provision 316 (141) Ending balance $1,130 $66 Ending balance: individually evaluated for impairment $1,130 $66 Financing receivables: Ending balance: individually evaluated for impairment $14,174 $81,215 (1)As a result of a troubled debt restructuring in the year ended December 31, 2012, the Company recorded a $0.1 million write-down on a $0.5 millionrecorded investment.(d) Foreign Exchange Risk ManagementThe Company is exposed to market risk from changes in foreign currency rates. A majority portion of the Company’s revenues is denominated in U.S.dollars while a substantial portion of its costs and expenses is denominated in Canadian dollars. A portion of the net U.S. dollar cash flows of the Company isperiodically converted to Canadian dollars to fund Canadian dollar expenses through the spot market. In China and Japan the Company has ongoing operatingexpenses related to its operations in Chinese Renminbi and Japanese yen, respectively. Net cash flows are converted to and from U.S. dollars through the spotmarket. The Company also has cash receipts under leases denominated in Chinese Renminbi, Japanese yen, Canadian dollar and Euros which are convertedto U.S. dollars through the spot market. The Company’s policy is to not use any financial instruments for trading or other speculative purposes.The Company entered into a series of foreign currency forward contracts to manage the Company’s risks associated with the volatility of foreigncurrencies. Certain of these foreign currency forward contracts met the criteria required for hedge accounting under the Derivatives and Hedging Topic of theFASB ASC at inception, and continue to meet hedge effectiveness tests at December 31, 2013 (the “Foreign Currency Hedges”), with settlement datesthroughout 2014. Foreign currency derivatives are recognized and measured in the balance sheet at fair value. Changes in the fair value (gains or losses) arerecognized in the consolidated statement of operations except for derivatives designated and qualifying as foreign currency hedging instruments. For foreigncurrency hedging instruments, the effective portion of the gain or loss in a hedge of a forecasted transaction is reported in other comprehensive income andreclassified to the consolidated statement of operations when the forecasted transaction occurs. Any ineffective portion is recognized immediately in theconsolidated statement of operations. 133Table of ContentsThe following tabular disclosures reflect the impact that derivative instruments and hedging activities have on the Company’s consolidated financialstatements:Notional value of foreign exchange contracts: As at December 31, 2013 2012 Derivatives designated as hedging instruments: Foreign exchange contracts — Forwards $23,555 $8,069 Fair value of derivatives in foreign exchange contracts: As at December 31, Balance Sheet Location 2013 2012 Derivatives designated as hedging instruments: Foreign exchange contracts — Forwards Other assets $ — $297 Foreign exchange contracts — Forwards Accrued and other liabilities (421) — $(421) $297 Derivatives in Foreign Currency Hedging relationships are as follows: Years Ended December 31, 2013 2012 2011 Foreign exchange contracts - Forwards Derivative (Loss) Gain Recognized in OCI(Effective Portion) $(1,031) $716 $(162) $(1,031) $716 $(162) Location of Derivative (Loss) GainReclassified from AOCIinto Income (Effective Portion) Years Ended December 31, 2013 2012 2011 Foreign exchange contracts - Forwards Selling, general and administrativeexpenses $(312) $236 $684 $(312) $236 $684 Years EndedDecember 31, 2013 Foreign exchange contracts - Forwards Derivative Loss Recognized In andOut of OCI (Effective Portion) $(486) $(486)Non Designated Derivatives in Foreign Currency relationships are as follows: Years Ended December 31, Location of Derivative Gain (Loss) 2013 2012 2011 Foreign exchange contracts - Forwards Selling, general and administrativeexpenses $ — $1,184 $(1,014) $ — $1,184 $(1,014) (e) Investments in New Business VenturesThe Company accounts for investments in new business ventures using the guidance of the FASB ASC 323 and the FASB ASC 320, as appropriate. Asat December 31, 2013, the equity method of accounting is being utilized for an investment with a carrying value of $0.4 million (December 31, 2012 — $3.0million). For the year ended December 31, 2013, gross revenues, cost of revenue and net loss for the investment were $6.6 million, $26.0 million and $26.3million, respectively (2012 — $9.0 million, $12.7 million, and $13.4 million, respectively). The difference between the Company’s investment balance andthe amount of underlying equity in net assets owned by the Company amounts to $0.4 million and relates to goodwill. In 2013, the Company has contributed 134Table of Contents$1.4 million, net of its share of costs, to a new business venture. This venture is still in the early-stage of start-up. The Company has determined it is not theprimary beneficiary of these VIEs, and therefore it has not been consolidated. In addition, the Company has an investment in preferred stock of anotherbusiness venture of $1.5 million which meets the criteria for classification as a debt security under the FASB ASC 320 and is recorded at a total fair value of$1.0 million at December 31, 2013 (December 31, 2012 — $1.4 million). In the year ended December 31, 2012, the Company recognized an other-than-temporary impairment for its investment of $0.2 million. This investment is classified as an available-for-sale investment. In 2013, the Company invested$2.5 million in the preferred shares of an enterprise which meet the criteria for classification as an equity security under ASC 325 and accrued $0.5 millionpertaining to warrants related to the respective investment. The total carrying value of investments in new business ventures at December 31, 2013 and 2012 is$5.8 million and $4.4 million, respectively, and is recorded in Other Assets.21. Employees’ Pension and Postretirement Benefits(a) Defined Benefit PlanThe Company has an unfunded U.S. defined benefit pension plan, the SERP, covering Richard L. Gelfond, Chief Executive Officer (“CEO”) of theCompany and Bradley J. Wechsler, Chairman of the Company’s Board of Directors. The SERP provides for a lifetime retirement benefit from age 55determined as 75% of the member’s best average 60 consecutive months of earnings over the member’s employment history. The benefits were 50% vested asat July 2000, the SERP initiation date. The vesting percentage increases on a straight-line basis from inception until age 55. As at December 31, 2013, thebenefits of Mr. Gelfond were 100% vested. Upon a termination for cause, prior to a change of control, the executive shall forfeit any and all benefits to whichsuch executive may have been entitled, whether or not vested.Under the terms of the SERP, if Mr. Gelfond’s employment terminated other than for cause (as defined in his employment agreement), he is entitled toreceive SERP benefits in the form of a lump sum payment. SERP benefit payments to Mr. Gelfond are subject to a deferral for six months after the terminationof his employment, at which time Mr. Gelfond will be entitled to receive interest on the deferred amount credited at the applicable federal rate for short-termobligations. Effective January 1, 2013 the term of Mr. Gelfond’s current employment agreement was extended through December 31, 2016, althoughMr. Gelfond has not informed the Company that he intends to retire at that time. Under the terms of the arrangement, no compensation earned beginning in2011 is included in calculating his entitlement under the SERP.The following assumptions were used to determine the obligation and cost status of the Company’s SERP at the plan measurement dates: As at December 31, 2013 2012 Discount rate 1.45% 0.96% Lump sum interest rate: First 20 years 3.35% 2.67% Thereafter 3.50% 3.01% Cost of living adjustment on benefits 1.20% 1.20% The amounts accrued for the SERP are determined as follows: Years Ended December 31, 2013 2012 Projected benefit obligation: Obligation, beginning of year $20,366 $18,990 Interest cost 195 272 Actuarial (gain) loss (2,277) 1,104 Obligation, end of year and unfunded status $18,284 $20,366 135Table of ContentsThe following table provides disclosure of the pension benefit obligation recorded in the consolidated balance sheets: As at December 31, 2013 2012 Accrued benefits cost $(18,284) $(20,366) Accumulated other comprehensive loss 646 3,367 Net amount recognized in the consolidated balance sheets $(17,638) $(16,999) The following table provides disclosure of pension expense for the SERP for the year ended December 31: Years ended December 31 2013 2012 2011 Interest cost 195 272 279 Amortization of actuarial loss 444 365 214 Pension expense $639 $637 $493 The accumulated benefit obligation for the SERP was $18.3 million at December 31, 2013 (2012 — $20.4 million).The following amounts were included in accumulated other comprehensive income and will be recognized as components of net periodic benefit cost infuture periods: As at December 31, 2013 2012 2011 Unrealized actuarial loss $646 $3,367 $2,628 No contributions were made for the SERP during 2013. The Company expects interest costs of $0.3 million to be recognized as a component of netperiodic benefit cost in 2014.The following benefit payments are expected to be made as per the current SERP assumptions and the terms of the SERP in each of the next five years,and in the aggregate: 2014 $— 2015 — 2016 — 2017 19,228 2018 — Thereafter — $19,228 (b) Defined Contribution Pension PlanThe Company also maintains defined contribution pension plans for its employees, including its executive officers. The Company makes contributionsto these plans on behalf of employees in an amount up to 5% of their base salary subject to certain prescribed maximums. During 2013, the Companycontributed and expensed an aggregate of $1.3 million (2012 — $1.1 million, 2011 — $1.0 million) to its Canadian plan and an aggregate of $0.3 million(2012 — $0.3 million, 2011 — $0.2 million) to its defined contribution employee pension plan under Section 401(k) of the U.S. Internal Revenue Code.(c) Postretirement Benefits - ExecutivesThe Company has an unfunded postretirement plan for Messrs. Gelfond and Wechsler. The plan provides that the Company will maintain healthbenefits for Messrs. Gelfond and Wechsler until they become eligible for Medicare and, thereafter, the Company will provide Medicare supplemental coverageas selected by Messrs. Gelfond and Wechsler. 136Table of ContentsThe amounts accrued for the plan are determined as follows: As at December 31, 2013 2012 Obligation, beginning of year $524 $502 Interest cost 19 13 Benefits paid (17) — Actuarial (gain) loss (134) 9 Obligation, end of year $392 $524 The following details the net cost components, all related to continuing operations, and underlying assumptions of postretirement benefits other thanpensions: Years Ended December 31, 2013 2012 2011 Interest cost $19 $13 $26 Actuarial loss — 9 — $19 $22 $26 The following amounts were included in accumulated other comprehensive income and will be recognized as components of net periodic benefit cost infuture periods: As at December 31, 2013 2012 2011 Unrealized actuarial gain $(134) $— $— Weighted average assumptions used to determine the benefit obligation are: As at December 31, 2013 2012 2011 Discount rate 3.75% 4.20% 5.30% Weighted average assumptions used to determine the net postretirement benefit expense are: Years Ended December 31 2013 2012 2011 Discount rate 4.50% 4.50% 4.50% The following benefit payments are expected to be made as per the current plan assumptions in each of the next five years: 2014 $20 2015 22 2016 24 2017 30 2018 32 Thereafter 264 Total $392 (d) Postretirement Benefits – Canadian EmployeesThe Company has an unfunded postretirement plan for its Canadian employees upon meeting specific eligibility requirements. The Company willprovide eligible participants, upon retirement, with health and welfare benefits. 137Table of ContentsIn February 2013, the Company amended the Canadian post-retirement plan to reduce future benefits provided under the plan. As a result of thischange, the Company recognized a pre-tax curtailment gain in the first quarter of 2013 of $2.2 million (included in selling, general and administrativeexpenses) and a reduction in the postretirement liability of $2.6 million.The amounts accrued for the plan are determined as follows: As at December 31, 2013 2012 Obligation, beginning of year $4,606 $4,052 Curtailment gain (2,185) — Interest cost 72 194 Service cost 27 231 Benefits paid (81) — Actuarial (gain) loss (95) 129 Obligation, end of year $2,344 $4,606 The following details the net cost components, all related to continuing operations, and underlying assumptions of postretirement benefits other thanpensions: Years Ended December 31, 2013 2012 2011 Curtailment gain $(2,185) $— $— Interest cost 72 194 183 Service cost 27 231 195 $(2,086) $425 $378 The following amounts were included in accumulated other comprehensive income and will be recognized as components of net periodic benefit cost infuture periods: As at December 31, 2013 2012 2011 Unrealized actuarial loss $303 $129 $234 Weighted average assumptions used to determine the benefit obligation are: As at December 31, 2013 2012 2011 Discount rate 4.50% 4.00% 4.50% Weighted average assumptions used to determine the net postretirement benefit expense are: Years Ended December 31 2013 2012 2011 Discount rate 4.00% 4.50% 5.00% The Company expects interest costs of $0.1 million and service costs of less than $0.1 million to be recognized as a component of net periodic benefitcost in 2014.The following benefit payments are expected to be made as per the current plan assumptions in each of the next five years: 2014 $79 2015 $92 2016 $103 2017 $114 2018 $121 Thereafter $1,835 Total $2,344 138Table of Contents22. Discontinued Operations(a) Nyack TheaterOn January 30, 2014, the Company’s lease with respect to its owned and operated Nyack IMAX Theater ended and the Company has decided not torenew the respective lease. The remaining assets and liabilities of the Nyack owned and operated theater that are included in the Company’s consolidatedbalance sheet as at December 31, 2013 are disclosed in note 22(c).As a result, the prior years’ amounts in the consolidated statements of operations and the consolidated statements of cash flows have been adjusted toreflect the reclassification of the owned and operated Nyack IMAX theater as a discontinued operation.(b) Operating Results for Discontinued OperationsThe net earnings from discontinued operations summarized in the consolidated statements of operations, were comprised of the following: Years Ended December 31, 2013 2012 2011 Services revenue $1,291 $1,535 $1,458 Services cost of sales applicable to revenues (1,758) (2,047) (2,305) Selling, general and administrative expenses (2) — — Asset impairments — — (8) Interest recovery 1 — — Tax recovery 159 — — Net loss from discontinued operations $(309) $(512) $(855) (c) Assets and Liabilities of Discontinued OperationsThe assets and liabilities related to the Nyack theater are included in the consolidated balance sheet of IMAX Corporation and are comprised of thefollowing: As at December 31, 2013 2012 Cash $134 $197 Accounts receivable 9 16 Inventories 20 21 Prepaid expenses 54 17 Property, plant and equipment — 2 Total assets $217 $253 Accounts payable $147 $133 Accrued liabilities 701 1,157 Deferred revenue 32 32 Total liabilities $880 $1,322 139Table of Contents23. Asset Retirement ObligationsThe Company has accrued costs related to obligations in respect of required reversion costs for its owned and operated theaters under long-term realestate leases which will become due in the future. The Company does not have any legal restrictions with respect to settling any of these long-term leases. Areconciliation of the Company’s liability in respect of required reversion costs is shown below: Years Ended December 31, 2013 2012 2011 Beginning balance, January 1 $249 $230 $286 Accretion expense 6 19 17 Reduction in asset retirement obligation (112) — (73) Ending balance, December 31 $143 $249 $230 140Table of ContentsItem 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone Item 9A.Controls and ProceduresEVALUATION OF DISCLOSURE CONTROLS AND PROCEDURESThe Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under theSecurities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods and that such information isaccumulated and communicated to management, including the CEO and CFO, to allow timely discussions regarding required disclosure. There are inherentlimitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention oroverriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achievingtheir control objectives.The Company’s management, with the participation of its CEO and its CFO, has evaluated the effectiveness of the Company’s “disclosure controls andprocedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as at December 31, 2013 and has concluded that, as of the endof the period covered by this report, the Company’s disclosure controls and procedures were effective. The Company will continue to periodically evaluate itsdisclosure controls and procedures and will make modifications from time to time as deemed necessary to ensure that information is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules and forms.MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGManagement is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.Management has used the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework in Internal Control-IntegratedFramework (1992) to assess the effectiveness of the Company’s internal control over financial reporting.Management has assessed the effectiveness of the Company’s internal control over financial reporting, as at December 31, 2013, and has concluded thatsuch internal control over financial reporting were effective as at that date.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.PricewaterhouseCoopers LLP has audited the effectiveness of the Company’s internal control over financial reporting as at December 31, 2013 as statedin their report on page 80.CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTINGDuring the first quarter of 2013, the Company implemented a new enterprise resource planning (“ERP”) system. The implementation of the new ERPsystem resulted in material changes to the nature and type of the Company’s internal controls over financial reporting during the year ended December 31,2013. The Company reviewed the implementation effort as well as the impact on its internal controls over financial reporting and where appropriate, has madechanges to these controls over financial reporting to address these system changes. The Company believes that the internal control changes resulting from thenew ERP implementation will improve the overall control environment. There were no other changes in the Company’s internal controls over financial reportingduring the quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls overfinancial reporting. Item 9B.Other InformationNone. 141Table of ContentsPART III Item 10.Directors, Executive Officers and Corporate GovernanceThe information required by Item 10 is incorporated by reference from the information under the following captions in the Company’s Proxy Statement:“Item No. 1 - Election of Directors;” “Executive Officers;” “Section 16(a) Beneficial Ownership Reporting Compliance;” “Code of Ethics;” and “AuditCommittee.” Item 11.Executive CompensationThe information required by Item 11 is incorporated by reference from the information under the following captions in the Company’s Proxy Statement:“Compensation Discussion and Analysis;” “Summary Compensation Table;” “Grant of Plan-Based Awards;” “Outstanding Equity Awards at Fiscal Year-End;” “Options Exercised;” “Pension Benefits;” “Employment Agreements and Potential Payments upon Termination or Change-in-Control;” “Compensationof Directors;” and “Compensation Committee Interlocks and Insider Participation.” Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by Item 12 is incorporated by reference from the information under the following captions in the Company’s Proxy Statement:“Equity Compensation Plans;” “Principal Shareholders of Voting Shares;” and “Security Ownership of Directors and Management.” Item 13.Certain Relationships and Related Transactions, and Director IndependenceThe information required by Item 13 is incorporated by reference from the information under the following caption in the Company’s Proxy Statement:“Certain Relationships and Related Transactions,” “Review, Approval and Ratification of Transactions with Related Persons,” and “Director Independence.” Item 14.Principal Accounting Fees and ServicesThe information required by Item 14 is incorporated by reference from the information under the following captions in the Company’s Proxy Statement:“Audit Fees;” “Audit-Related Fees;” “Tax Fees;” “All Other Fees;” and “Audit Committee’s Pre-Approved Policies and Procedures.”PART IV Item 15.Exhibits and Financial Statement Schedules(a)(1) Financial StatementsThe consolidated financial statements filed as part of this Report are included under Item 8 in Part II.Report of Independent Registered Public Accounting Firm, which covers both the financial statements and financial statement schedule in (a)(2), isincluded under Item 8 in Part II.(a)(2) Financial Statement SchedulesFinancial statement schedule for each year in the three-year period ended December 31, 2013.II. Valuation and Qualifying Accounts.(a)(3) ExhibitsThe items listed as Exhibits 10.1 to 10.40 relate to management contracts or compensatory plans or arrangements. 142Table of ContentsExhibitNo. Description 3.1 Restated Articles of Incorporation of IMAX Corporation, dated July 30, 2013. Incorporated by reference to Exhibit 3.1 to IMAX Corporation’s Form10-Q, for the quarter ended September 30, 2013 (File No. 001-35066). 3.2 By-Law No. 1 of IMAX Corporation enacted on June 11, 2013. Incorporated by reference to Exhibit 3.2 to IMAX Corporation’s Form 8-K, datedJune 11, 2013 (File No. 001-35066). 4.1 Shareholders’ Agreement, dated as of January 3, 1994, among WGIM Acquisition Corporation, the Selling Shareholders as defined therein,Wasserstein Perella Partners, L.P., Wasserstein Perella Offshore Partners, L.P., Bradley J. Wechsler, Richard L. Gelfond and Douglas Trumbull(the “Selling Shareholders’ Agreement”). Incorporated by referenced to Exhibit 4.1 to IMAX Corporation’s Form 10-K, for the year ended December31, 2012 (File No. 001-35066). 4.2 Amendment, dated as of March 1, 1994, to the Selling Shareholders’ Agreement. Incorporated by reference to Exhibit 4.2 to IMAX Corporation’sForm 10-K, for the year ended December 31, 2012 (File No. 001-35066). 4.3 Registration Rights Agreement, dated as of February 9, 1999, by and among IMAX Corporation, Wasserstein Perella Partners, L.P., WassersteinPerella Offshore Partners, L.P., WPPN Inc., the Michael J. Biondi Voting Trust, Bradley J. Wechsler and Richard L. Gelfond. Incorporated byreferenced to Exhibit 4.3 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2012 (File No. 001-35066). 10.1 Stock Option Plan of IMAX Corporation, dated June 18, 2008. Incorporated by reference to Exhibit 10.1 to IMAX Corporation’s Form 10-K, forthe year ended December 31, 2010 (File No. 001-35066). 10.2 IMAX Corporation 2013 Long Term Incentive Plan. Incorporated by referenced to Exhibit 10.1 to IMAX Corporation’s Form 8-K, dated June 11,2013 (File No. 001-35066). 10.3 IMAX Corporation Supplemental Executive Retirement Plan, as amended and restated as of January 1, 2006 Incorporated by reference to Exhibit10.2 to IMAX Corporation’s Form 10-K, for year ended December 31, 2012 (File No. 001-35066). 10.4 Employment Agreement, dated July 1, 1998, between IMAX Corporation and Bradley J. Wechsler. Incorporated by reference to Exhibit 10.3 toIMAX Corporation’s Form 10-K, for the year ended December 31, 2012 (File No. 001-35066). 10.5 Amended Employment Agreement, dated July 12, 2000, between IMAX Corporation and Bradley J. Wechsler. Incorporated by reference to Exhibit10.4 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2012 (File No. 001-35066). 10.6 Amended Employment Agreement, dated March 8, 2006, between IMAX Corporation and Bradley J. Wechsler. Incorporated by reference toExhibit 10.5 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066). 10.7 Amended Employment Agreement, dated February 15, 2007, between IMAX Corporation and Bradley, J. Wechsler. Incorporated by reference toExhibit 10.6 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066).*10.8 Amended Employment Agreement, dated December 31, 2007, between IMAX Corporation and Bradley J. Wechsler. 10.9 Services Agreement, dated December 11, 2008, between IMAX Corporation and Bradley J. Wechsler. Incorporated by reference to Exhibit 10.8 toIMAX Corporation’s Form 10-K, for the year ended December 31, 2008 (File No. 000-24216). 10.10 Services Agreement Amendment, dated February 14, 2011, between IMAX Corporation and Bradley J. Wechsler. Incorporated by reference toExhibit 10.9 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2010 (File No. 001-35066).*10.11 Services Agreement Amendment dated April 1, 2013, between IMAX Corporation and Bradley J. Wechsler. 10.12 Employment Agreement, dated July 1, 1998, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference to Exhibit 10.10 toIMAX Corporation’s Form 10-K, for the year ended December 31, 2012 (File No. 001-35066). 10.13 Amended Employment Agreement, dated July 12, 2000, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference to Exhibit10.11 to IMAX Corporation’s Form 10-K for the year ended December 31, 2012 (File No. 001-35066). 10.14 Amended Employment Agreement, dated March 8, 2006, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference toExhibit 10.12 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066). 143Table of Contents 10.15 Amended Employment Agreement, dated February 15, 2007, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference toExhibit 10.13 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066).*10.16 Amended Employment Agreement, dated December 31, 2007, between IMAX Corporation and Richard L. Gelfond. 10.17 Amended Employment Agreement, dated December 11, 2008, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference toExhibit 10.14 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2008 (File No. 000-24216). 10.18 Amended Employment Agreement, dated December 20, 2010, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference toExhibit 10.16 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2010 (File No. 001-35066). 10.19 Amended Employment Agreement, dated December 12, 2011, between IMAX Corporation and Richard L. Gelfond. Incorporated by reference toExhibit 10.17 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066).*10.20 Employment Renewal Term Sheet, dated December 20, 2013, between IMAX Corporation and Richard L. Gelfond. 10.21 Employment Agreement, dated March 9, 2006, between IMAX Corporation and Greg Foster. Incorporated by reference to Exhibit 10.18 to IMAXCorporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066).*10.22 First Amending Agreement, dated December 31, 2007, between IMAX Corporation and Greg Foster. 10.23 Second Amending Agreement, dated April 29, 2010, between IMAX Corporation and Greg Foster. Incorporated by reference to Exhibit 10.31 toIMAX Corporation’s Form 10-Q, for the quarter ended June 30, 2010 (File No. 000-24216). 10.24 Third Amending Agreement, dated June 12, 2013, between IMAX Corporation and Greg Foster. Incorporated by reference to Exhibit 10.21 to IMAXCorporation’s Form 10-Q, for the quarter ended June 30, 2013 (File No. 001-35066). 10.25 Employment Agreement, dated May 14, 2007, between IMAX Corporation and Joseph Sparacio. Incorporated by reference to Exhibit 10.21 toIMAX Corporation’s Form 10-K, for the year ended December 31, 2012 (File No. 001-35066). 10.26 First Amending Agreement, dated May 14, 2009, between IMAX Corporation and Joseph Sparacio. Incorporated by reference to IMAXCorporation’s Form 10-K, for the year ended December 31, 2009 (File No. 000-24216). 10.27 Second Amending Agreement, dated May 14, 2010, between IMAX Corporation and Joseph Sparacio. Incorporated by reference to IMAXCorporation’s Form 10-Q, for the quarter ended June 30, 2010 (File No. 000-24216). 10.28 Third Amending Agreement, dated January 23, 2012, between IMAX Corporation and Joseph Sparacio. Incorporated by reference to Exhibit 10.24to IMAX Corporation’s Form 10-K, for the year ended December 31, 2011 (File No. 001-35066).*10.29 Employment Agreement, dated January 31, 2012, between IMAX Corporation and Andrew Cripps.*10.30 Employment Renewal Term Sheet, dated January 23, 2014, between IMAX Corporation and Andrew Cripps.*10.31 Employment Agreement, dated May 17, 1999, between IMAX Corporation and Robert D. Lister.*10.32 Letter Agreement, dated August 21, 2000 between IMAX Corporation and Robert D. Lister.*10.33 Amended Employment Agreement, dated April 4, 2001 between IMAX Corporation and Robert D. Lister. 10.34 Second Amended Employment Agreement, dated January 1, 2004, between IMAX Corporation and Robert D. Lister. Incorporated by reference toExhibit 10.17 to IMAX Corporation’s Registration Statement on Form S-4 (File No. 333-113141). 10.35 Third Amending Agreement, dated February 14, 2006, between IMAX Corporation and Robert D. Lister. Incorporated by reference to Exhibit 10.24to IMAX Corporation’s Form 10-K, for the year ended December 31, 2010 (File No. 001-35066).*10.36 Fourth Amending Agreement, dated October 5, 2006, between IMAX Corporation and Robert D. Lister. 144Table of Contents*10.37 Fifth Amending Agreement, dated December 31, 2007, between IMAX Corporation and Robert D. Lister. 10.38 Sixth Amending Agreement, dated December 31, 2009, between IMAX Corporation and Robert D. Lister. Incorporated by reference to Exhibit 10.25to IMAX Corporation’s Form 10-K for the year ended December 31, 2009 (File No. 000-24216).*10.39 Employment Renewal Term Sheet, dated January 23, 2014, between IMAX Corporation and Robert D. Lister. 10.40 Statement of Directors’ Compensation, dated June 5, 2012. Incorporated by reference to Exhibit 10.26 to IMAX Corporation’s Form 10-Q for thequarter ended June 30, 2012 (File No. 001-35066). 10.41 Second Amended and Restated Credit Agreement, dated June 2, 2011 by and between IMAX Corporation, Wells Fargo Capital Finance Corporationand Export Development Canada. Incorporated by reference to Exhibit 10.37 to IMAX Corporation’s Form 10-Q, for the quarter ended June 20,2011 (File No. 001-35066). 10.42 Third Amended and Restated Credit Agreement, dated February 7, 2013, by and between IMAX Corporation, the Guarantors referred to therein, theLenders referred to therein, Wells Fargo Bank National Association and Wells Fargo Securities, LLC. Incorporated by reference to Exhibit 10.28 toIMAX Corporation’s Form 10-K, for year ended December 31, 2012 (File No. 001-35066).*10.43 Securities Purchase Agreement, dated as of May 5, 2008, by and between IMAX Corporation, Douglas Family Trust, James Douglas and JeanDouglas Irrevocable Descendants’ Trust, James E. Douglas, III, and K&M Douglas Trust. 10.44 Amendment No. 1 to Securities Purchase Agreement, dated December 1, 2008, by and between IMAX Corporation, Douglas Family Trust, JamesDouglas and Jean Douglas Irrevocable Descendants’ Trust, James E. Douglas, III, and K&M Douglas Trust. Incorporated by reference toExhibit 10.34 to IMAX Corporation’s Form 10-K, for the year ended December 31, 2008 (File No. 000-24216).*21 Subsidiaries of IMAX Corporation.*23 Consent of PricewaterhouseCoopers LLP.*24 Power of Attorney of certain directors.*31.1 Certification Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002, dated February 20, 2014, by Richard L. Gelfond.*31.2 Certification Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002, dated February 20, 2014, by Joseph Sparacio.*32.1 Certification Pursuant to Section 906 of the Sarbanes — Oxley Act of 2002, dated February 20, 2014, by Richard L. Gelfond.*32.2 Certification Pursuant to Section 906 of the Sarbanes — Oxley Act of 2002, dated February 20, 2014, by Joseph Sparacio. *Filed herewith 145Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. IMAX CORPORATIONBy /s/ JOSEPH SPARACIO Joseph Sparacio Executive Vice-President & Chief Financial OfficerDate: February 20, 2014Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities indicated on February 20, 2014. /s/ RICHARD L. GELFOND /s/ JOSEPH SPARACIO /s/ JEFFREY VANCE Richard L. GelfondChief Executive Officer &Director(Principal Executive Officer) Joseph SparacioExecutive Vice President &Chief Financial Officer(Principal Financial Officer) Jeffrey VanceSenior Vice-President,Finance & Controller(Principal Accounting Officer)* * *Bradley J. WechslerChairman of the Board & Director Neil S. BraunDirector Eric A. DemirianDirector* * *David W. LeebronDirector Garth M. GirvanDirector Michael LynneDirector* * *Michael MacMillanDirector I. Martin PompadurDirector Marc A. UtayDirector By * /s/ JOSEPH SPARACIO Joseph Sparacio (as attorney-in-fact) 146Table of ContentsIMAX CORPORATIONSchedule IIValuation and Qualifying Accounts(In thousands of U.S. dollars) Balance atbeginningof year Additions/(recoveries)charged toexpenses Otheradditions/(deductions)(1) Balance atend of year Allowance for net investment in leases Year ended December 31, 2011 $4,838 $1,521 $(4,526) $1,833 Year ended December 31, 2012 $1,833 $(1,019) $316 $1,130 Year ended December 31, 2013 $1,130 $(624) $300 $806 Allowance for financed sale receivables Year ended December 31, 2011 $66 $— $250 $316 Year ended December 31, 2012 $316 $(109) $(141) $66 Year ended December 31, 2013 $66 $— $171 $237 Allowance for doubtful accounts receivable Year ended December 31, 2011 $1,988 $788 $(936) $1,840 Year ended December 31, 2012 $1,840 $606 $(882) $1,564 Year ended December 31, 2013 $1,564 $(35) $(642) $887 Deferred income tax valuation allowance Year ended December 31, 2011 $7,929 $(1,264) $(611) $6,054 Year ended December 31, 2012 $6,054 $93 $(34) $6,113 Year ended December 31, 2013 $6,113 $(341) $(1,018) $4,754 (1)Deductions represent write-offs of amounts previously charged to the provision.IMAX CORPORATIONEXHIBIT 10.8AMENDED EMPLOYMENT AGREEMENTThis agreement amends the amended employment agreement (the “Agreement”) between Bradley J. Wechsler (the “Executive”) and IMAX Corporation(the “Company”) dated July 1, 1998, as amended, on the same terms and conditions except as set out below: 1.Term. The term of the Agreement is extended until December 31, 2009. 2.Cash Compensation. The Executive shall be entitled to be paid base salary at the rate of $500,000 per year, plus a bonus of up to two times salary.Such bonus shall be at the discretion of the Board of Directors and shall be based upon the success of the Company in achieving the goals andobjectives set by the Board after consultation with the Executive. The Executive shall be considered for a bonus based upon performance during theyears ending December 31, 2008 and 2009. If the Executive’s employment is terminated without Cause prior to the end of the term, the Executive shall beentitled to no less than a pro-rata portion of his median bonus target (i.e. one times salary). 3.Stock Appreciation Rights. The Executive is hereby granted 600,000 stock appreciation rights (“SARS”) which shall entitle the Executive to receive incash from the Company any increase in the fair market value of the common shares of the Company from the fair market value thereof onDecember 31, 2007 to the date of exercise of the SARS. The SARS shall vest according to the following schedule: 150,000 on June 30, 2008, 150,000 onDecember 31, 2008, 150,000 on June 30, 2009 and 150,000 on December 31, 2009. All SARS will have a 10-year term and, to the extent applicable,shall be governed by the provisions of the Stock Option Plan of the Company (“SOP”), including for greater certainty, the provisions relating to thecalculation of the fair market value of common shares of the Company; provided, however, that all vested SARS shall remain exercisable for a period ofthree (3) years after either a termination without Cause of the Executive or the non-renewal of this Agreement, and for one (1) year after a resignation bythe Executive. The vesting of all SARS shall be accelerated upon a “change of control” as defined in the Agreement, and shall be governed, to the extentapplicable, by the provisions in the Agreement regarding change of control. At any time and from time to time after vesting, but subject to the insidertrading policy of the Company in effect at that time which shall apply to the SARS as if they were securities covered thereby, the Executive shall beentitled to exercise some or all of the vested SARS by delivering notice of exercise in writing to the General Counsel of the Company. Within 10 businessdays after receipt of such notice in writing, the Company shall pay to the Executive the amount by which the fair market value of the common shares ofthe Company has increased from the fair market value on December 31, 2007 to the fair market value on the date of such notice, net of any applicablewithholdings and any other amounts owing at that time by the Executive to the Company. Notwithstanding anything to the contrary contained herein, theCompany shall have the right but not the obligation to cancel at any time all, or from time to time any part, of the SARS, in any case upon notice inwriting to the Executive and to replace the cancelled SARS with stock options, provided that (i) such options or shares have no less favorable (to theExecutive) material terms and conditions as, and are in such number as are of equivalent value to, the cancelled SARS, and (ii) the Company cannotreplace cancelled SARS with stock options if such options have a higher exercise price than the price of the common shares of the Company onDecember 31, 2007.4.The entering into this agreement shall not prejudice any rights or waive any obligations under any other agreement between the Executive and theCompany.DATED as of December 31, 2007. “Bradley J. Wechsler”Bradley J. WechslerIMAX CORPORATIONPer: “Garth M. Girvan” Name: Garth M. Girvan Title: DirectorIMAX CORPORATIONEXHIBIT 10.11AMENDING AGREEMENT No.2This Amendment to Services Agreement dated as of (the “Amending Agreement”) is made between:IMAX CORPORATION, a corporation incorporated under the laws of Canada (hereinafter referred to as the “Company”),andBRAD WECHSLER (the “Executive”)WHEREAS, the Company wishes to enter into this Amending Agreement No. 2 to amend and extend the Services Agreement dated as of December 11, 2008 ,as amended by Amending Agreement dated February 14, 2011, (collectively the “Agreement”).NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1.The following will be added as the final “Whereas clause” on page 1 of the Agreement:“WHEREAS the Board and the Chairman each recognize and acknowledge their fiduciary duties to the Company.” 2.Section 1 of the Agreement shall be deleted and replaced with the following:1. Term. The term of the Agreement shall begin on the Effective Date and continue until such time as the Board determines to terminate the services ofthe Chairman. Any such termination shall be communicated to Chairman with ninety (90) days written notice, unless termination is made for Cause, asthat term is defined in the Employment Agreement, in which case no notice shall be required. Unless the Chairman’s services are terminated asaforesaid, the Board agrees continue to nominate him for re-election to the Board and to make all reasonable efforts to solicit shareholder approval of hisre-election to the Board. 3.Section 3 of the Agreement shall be deleted and replaced with the following:3. Compensation and Benefits. During the Term, Chairman shall receive a cash stipend of $230,000 for each year served as Chairman of the Board,payable in equal parts fifteen (15) days after the end of each calendar quarter (the “Fee”). The Company shall also reimburse Chairman for allreasonable out-of-pocket expenses in the performance of his obligations under this Agreement for which documentation reasonably satisfactory to IMAXis provided, including expenses relating to Chairman’s travel and performance of duties outside of his office in New York. The Company shalladditionally provide Chairman with reimbursement of all reasonable automobile expenses, office space in the Company’s New York office and anassistant throughout the Term.4.General. Except as amended herein, all other terms of the Agreement shall remain in full force and unamended.DATED as of April 1, 2013AGREED AND ACCEPTED: /s/ Bradley J. WechslerBradley J. WechslerIMAX CORPORATION/s/ Robert D. ListerRobert D. Lister Chief Legal OfficerChief Business Development Officer/s/ Joseph SparacioJoseph Sparacio Executive Vice President andChief Financial OfficerIMAX CORPORATIONEXHIBIT 10.16AMENDED EMPLOYMENT AGREEMENTThis agreement amends the amended employment agreement (the “Agreement”) between Richard L. Gelfond (the “Executive”) and IMAX Corporation(the “Company”) dated July 1, 1998, as amended, on the same terms and conditions except as set out below: 1.Term. The term of the Agreement is extended until December 31, 2009. 2.Cash Compensation. The Executive shall be entitled to be paid base salary at the rate of $500,000 per year, plus a bonus of up to two times salary.Such bonus shall be at the discretion of the Board of Directors and shall be based upon the success of the Company in achieving the goals andobjectives set by the Board after consultation with the Executive. The Executive shall be considered for a bonus based upon performance during theyears ending December 31, 2008 and 2009. If the Executive’s employment is terminated without Cause prior to the end of the term, the Executive shall beentitled to no less than a pro-rata portion of his median bonus target (i.e. one times salary). 3.Stock Appreciation Rights. The Executive is hereby granted 600,000 stock appreciation rights (“SARS”) which shall entitle the Executive to receive incash from the Company any increase in the fair market value of the common shares of the Company from the fair market value thereof onDecember 31, 2007 to the date of exercise of the SARS. The SARS shall vest according to the following schedule: 150,000 on June 30, 2008, 150,000 onDecember 31, 2008, 150,000 on June 30, 2009 and 150,000 on December 31, 2009. All SARS will have a 10-year term and, to the extent applicable,shall be governed by the provisions of the Stock Option Plan of the Company (“SOP”), including for greater certainty, the provisions relating to thecalculation of the fair market value of common shares of the Company; provided, however, that all vested SARS shall remain exercisable for a period ofthree (3) years after either a termination without Cause of the Executive or the non-renewal of this Agreement, and for one (1) year after a resignation bythe Executive. The vesting of all SARS shall be accelerated upon a “change of control” as defined in the Agreement, and shall be governed, to the extentapplicable, by the provisions in the Agreement regarding change of control. At any time and from time to time after vesting, but subject to the insidertrading policy of the Company in effect at that time which shall apply to the SARS as if they were securities covered thereby, the Executive shall beentitled to exercise some or all of the vested SARS by delivering notice of exercise in writing to the General Counsel of the Company. Within 10 businessdays after receipt of such notice in writing, the Company shall pay to the Executive the amount by which the fair market value of the common shares ofthe Company has increased from the fair market value on December 31, 2007 to the fair market value on the date of such notice, net of any applicablewithholdings and any other amounts owing at that time by the Executive to the Company. Notwithstanding anything to the contrary contained herein, theCompany shall have the right but not the obligation to cancel at any time all, or from time to time any part, of the SARS, in any case upon notice inwriting to the Executive and to replace the cancelled SARS with stock options, provided that (i) such options or shares have no less favorable (to theExecutive) material terms and conditions as, and are in such number as are of equivalent value to, the cancelled SARS, and (ii) the Company cannotreplace cancelled SARS with stock options if such options have a higher exercise price than the price of the common shares of the Company onDecember 31, 2007.4.The entering into this agreement shall not prejudice any rights or waive any obligations under any other agreement between the Executive and theCompany.DATED as of December 31, 2007. “Richard L. Gelfond”Richard L. GelfondIMAX CORPORATIONPer: “Garth M. Girvan” Name: Garth M. Girvan Title: DirectorIMAX CORPORATIONEXHIBIT 10.20Richard Gelfond - CEO Compensation Term SheetDecember 20, 2013 Component TermsTerm Three years (2014 – 2016)Salary $1.1 million annuallyAnnualIncentive 100% of salary at target ($1.1 million)(Potential payout ranges from 0% - 200% based on performance goals determined annually by the Board)Long-TermIncentive $5.2 million annual grant date value • Stock Options - $3.9 million • RSUs (time vested) - $1.3 million Grant timing for 2014 grant: Likely to be expiration of current blackout period. Stock Options • Annual stock option grants made in 2014, 2015, and 2016, each vesting by the end of 2016 • 2014 grant vests one-third during each year (pursuant to same vesting schedule as the most recent option agreement), with the lasttranche for the applicable year vesting no later December 31 of that year, over 3 years following grant • 2015 grant vests one-half during each year (pursuant to the same vesting schedule as the most recent option grant), with the lasttranche for the applicable year vesting no later than December 31 of that year, over 2 years following grant • 2016 grant vests (pursuant to the same vesting schedule as the most recent option agreement), fully over one year, with the lasttranche vesting no later than December 31, 2016. RSUs • Three years of grants made upfront on or around Dec. 31, 2013 ($3.9 million upfront value) • Grant vests one-third per year over 3 years following grant, based solely on timeEquityTreatmentUpon CIC Unvested equity (stock options and RSUs) vests automatically upon a CIC if employment is terminated without cause or for “goodreason” (e.g., diminution of responsibilities, including change of reporting relationship) at any time after the CIC • Ungranted stock options paid out in cash at grant date value upon a CIC if employment is terminated without cause or for “goodreason” (i.e., diminution of responsibilities, including change of reporting relationship) at any time after the CICComponent Terms Post-TerminationOptionTreatment Time remaining in which to exercise options following termination of employment: • Termination not-for-cause or resignation for Good Reason – 5, 4, and 3 years, respectively, from end of contract term for 2014, 2015,and 2016 grants • Non-renewal of contract by IMAX on at least substantially the same terms – same as above • Resignation by CEO without Good Reason – 2 years from resignation Driver • Paid by the Company ($100,000) Miscellaneous • Insurance on pension amount – to be clarified ApproximateAnnual TargetEconomic Value • Salary - $1.1 million • Annual Incentive - $1.1 million • Long-term Incentive - $5.2 million • Driver - $100,000 • TOTAL - $7.5 million Other • Definitions and other terms to continue substantially the same as provided in current employment agreement and to be incorporated into anew long form employment agreement.IMAX CORPORATIONEXHIBIT 10.22FIRST AMENDING AGREEMENTThis Amendment to Employment Agreement dated as of December 31st, 2007 (the “Amending Agreement”) is made between:IMAX CORPORATION, a corporation incorporated under the laws of Canada (hereinafter referred to as the “Company”),andGREG FOSTER, of the City of Los Angeles in the State of California( the “Executive”),WHEREAS, the Company wishes to enter into this Amending Agreement to amend and extend the Employment Agreement dated as of March 1, 2006between the Company and the Executive (together, the “Agreement”), whereunder the Executive provides services to the Company, and the Executive wishes toso continue such engagement, as hereinafter set forth;NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties heretoagree as follows:1. Section 1.3 of the Agreement shall be deleted and replaced with the following:“Section 1.3 Term of Employment. The Executive’s employment under this Agreement commenced on the 19th day of March, 2001 (the “CommencementDate”) and shall terminate on the earlier of (i) July 1, 2010, or (ii) the termination of the Executive’s employment pursuant to this Agreement. The periodcommencing as of the Commencement Date and ending on July 1, 2010 or such later date to which the term of the Executive’s employment under thisAgreement shall have been extended is hereinafter referred to as the “Employment Term.”2. Section 2.2 of the Agreement shall be amended to add the following sentence at the end of the first paragraph as follows:“Notwithstanding the foregoing, in respect of each of the 2008 and 2009 fiscal years, the Executive shall be paid a Minimum Bonus equal to US$425,000 per year.3. Section 2.3.1 of the Agreement shall be deleted and replaced with the following:“Section 2.3.1 Incentive Compensation. On the later of : (a) December 31st, 2007 and (b) if, on December 31st, 2007, the Company has material informationwhich has not been publicly disclosed, the date which is fifteen (15) days after the date on which such information is publicly disclosed, the Executive shallbe granted 300,000 stock appreciation rights (“SARS”) which shall entitle the Executive to receive in cash from the Company any increase in the fair marketvalue of the common shares of the Company from the fair market value thereof on December 31, 2007 to the date of exercise of the SARS. 150,000 SARSshall vest on each of July 1, 2009 and July 1, 2010. All SARS will have a 10-year term, commencing on the date of grant and, to the extent applicable, theSARs shall be governed by the provisions of the Stock Option Plan of the Company (the “Plan”), including for greater certainty, the provisions relating to thecalculation of the fair market value of common shares of the Company, resignation or termination; provided, however, that to the extent any provisions of thePlan conflict with provisions of the Agreement, the provisions of the Agreement shall apply. The vesting of all SARS shall be accelerated upon a “change ofcontrol” as defined in the Plan and shall be governed, to the extent applicable, by the provisions in theAgreement regarding change of control. At any time and from time to time after vesting, but subject to the insider trading policy of the Company in effect atthat time which shall apply to the SARS as if they were securities covered thereby, the Executive shall be entitled to exercise some or all of the vested SARS bydelivering notice of exercise in writing to one of the Chief Executives of the Company. Within 10 business days after receipt of such notice in writing, theCompany shall pay to the Executive the amount by which the fair market value of the common shares of the Company has increased from the fair marketvalue on the date of grant to the fair market value on the date of such notice, net of any applicable withholdings and any other amounts owing at that time bythe Executive to the Company. Notwithstanding anything to the contrary contained herein, the Company shall have the right but not the obligation to cancel atany time all, or from time to time any part, of the SARS, in any case upon notice in writing to the Executive and to replace the cancelled SARS with a grant ofstock options under the Plan (the “Options”) provided that (i) such Options have no less favorable (to the Executive) material terms and conditions as, and arein such number as are of equivalent value to, the cancelled SARS, and (ii) the Company cannot replace cancelled SARs with stock options if such optionshave a higher exercise price than the fair market value of the common shares of the Company on December 31st, 2007.In addition, if there is a “Change of Control” of the Company (as defined in the Agreement) on or before March 10, 2009, the Employee shall be paid anincentive bonus equal to the difference between the price of the Common Shares upon such Change of Control and the price of the Common Shares onMarch 10, 2006, multiplied by 50,000. Such incentive bonus shall be paid: (i) in a lump sum in the event Employee is terminated Without Cause followingsuch Change of Control, or (ii) in three equal instalments on the third, fourth and fifth anniversaries of the grant date of the Options.”4. The Company agrees to hire a regular employee in the Human Resources Department who will be dedicated to and principally located in the Company’soffices in Los Angeles.5. The Company agrees that it will use its best efforts to ensure that the Executive is invited to attend regularly scheduled meetings of the Board of Directors ofthe Company to the extent that the Executive’s attendance is agreeable to the Board and is not inconsistent with good corporate governance. The Executiveunderstands and accepts that there may be meetings, or portions of meetings, where his attendance would be inappropriate and that he will not attend on theseoccasions.Except as amended herein, all other terms of the Agreement shall remain in full force, unamended.IN WITNESS WHEREOF, the Company and the Executive have duly executed and delivered this Amending Agreement on this 31st day of December, 2007. IMAX CORPORATION By: “Bradley J. Wechsler” Name: Bradley J. Wechsler Title: Co-Chief Executive Officer By: “Richard L. Gelfond” Name: Richard L. Gelfond Title: Co-Chief Executive OfficerSIGNED, SEALED AND DELIVERED EXECUTIVE:in the presence of: “Jill Ferguson” “Greg Foster”Witness Greg FosterIMAX CORPORATIONEXHIBIT 10.29 IMAX International Sales CorporationJanuary 31st, 2012Andrew Cripps19 Gerard RoadBarnes, LondonSW13 9RQEnglandDear Andrew:I am very pleased to offer you the position of Executive Vice President, IMAX Corporation and President, Europe, Middle East and Africa of IMAXInternational Sales Corporation. The terms and conditions of your employment are summarized below: Title: Executive Vice President, IMAX Corporation and President, Europe, Middle East and Africa of IMAX International SalesCorporationReporting to: Greg Foster on film related matters and Richard Gelfond on all other matters.Term: February 27, 2012 to February 27, 2014.Base salary: £475,000 (pounds sterling) per annum, to be paid in no less than equal monthly instalments and no later than by the end of eachcalendar month.Bonus: You will be eligible to participate in the IMAX Management Bonus Program, under which your target annual bonus is 100% of yourBase Salary. In the first calendar year of employment, your bonus payment will be prorated based on your start date. Calculation ofthis bonus will be weighted as 50% based on personal performance and 50% based on company performance. Payment of thisbonus is discretionary and requires that you be employed with IMAX on the payout date.Stock Options: Effective as soon as practicable after your start date of employment, you will be granted non-qualified options (the “Options”) topurchase 400,000 shares of common stock of the Company (the “Common Shares”), at an exercise price per Common Share equalto the Fair Market Value, as defined in the Company’s Stock Option Plan (the “Option Plan”). Twenty five percent (25%) of theOptions shall vest and become exercisable on each of the first four anniversary dates of the grant date. The Options shall be subject to the terms and conditions of the Option Plan and the stock option agreement to be entered intobetween the Company and yourself as of the applicable date of grant pursuant to, and in accordance with, the terms of the OptionPlan.Benefits: You will be eligible to receive benefits effective on the first day of your employment, at the Company’s option either by local plan,or an allowance in lieu of benefits including: (a) Family Medical benefits for you and your eligible dependents; (b) Disability Insurance; (b) Life insurance coverage equal to £500,000 (pounds sterling); and (c) Annual Pension allowance of £20,000 (pounds sterling) for employer contributions to be paid out proportionately on eachpay. We are in the process of setting up a pension scheme in the UK and you will convert over to that scheme uponimplementation.Car Allowance: £850.00 (pounds sterling) per month in addition to operating, maintenance and insurance costs.Taxes: In accordance with legislation, you are responsible for filing the required tax returns with the appropriate tax authorities and allassociated tax liabilities, as required by law. IMAX will provide the services of Company-designated tax consultant to assist in thepreparation of UK and US tax returns for the term of this assignment.Vacation/ Annual Leave: You will be eligible to receive twenty five (25) days of paid annual leave per calendar year, exclusive of any statutory holidaysobserved in the UK. For 2012, this amount will be pro-rated based on your start date.Location & Travel: You will be located in or near London, England with significant travel to North America and other locations as necessary to growand support the business of the Company. This requires a valid passport and the ability to travel to these locations at all times. You will be eligible for First Class travel to and from the UK to North America, Asia and Latin America and Business Class travelwithin Europe.Equipment: You will be provided a phone/blackberry and laptop computer.References: This offer is conditional upon the company receiving satisfactory results from its reference checks. 2Background Check: This offer is subject to the completion of a satisfactory background investigation including criminal check. (CRB check)Confidentiality &Code of Ethics: You will be required to execute IMAX’s Confidentiality & Non- Competition Agreement and Code of Ethics (attached) prior tocommencing work.Please indicate your formal acceptance of the above terms by signing this offer and associated documents and faxing to Carrie Lindzon-Jacobs, IMAX HumanResources, at her confidential fax (905-403-6464) or alternatively you may scan and email the signed documents to clj@imax.com. Your facsimile andscanned signature will be considered valid and binding for all purposes.Andrew, we’re very excited at the prospect of you joining our team and are confident that IMAX will provide you with the opportunity for challenging andrewarding career growth. Sincerely,/s/ Richard L GelfondRich GelfondCEOIMAX Corporationcc: Human ResourcesI accept the offer of employment as written: /s/ Andrew Cripps Feb. 3, 2012 Andrew Cripps (Signature) Date 3IMAX CORPORATIONEXHIBIT 10.30Andrew Cripps Renewal – Term SheetJanuary 23, 2014Term: Indefinite - Full time/PermanentBase salary: £500,000 - eligible for annual review as part of regular company cycle starting Q1 2015.Bonus target: 70%. Bonus is discretionary, based 50% on company performance and 50% on personal performanceLTIP:Q1 2014: $65,000 worth of RSUs (20/25/25/30 4 year vest)Q1 2015: $75,000 worth of RSUs (20/25/25/30 4 year vest)Effective Q1 2016 will participate as a “regular” employee in the standard LTIP grant process.Benefits: We will continue to pay for health benefits, life insurance and pension. If Andrew reaches a pension cap we will contribute the same amount as wecurrently are to his pension to a Life Insurance product or something else instead.Car allowance: No change to current £850 per month + expensesTermination/Severance: In the case of termination without cause, we will provide Andrew with working notice or pay in lieu of notice equal to six months +1month of base salary and benefits for every full year of service from the effective date of the new agreement to a max of 12 months in total.Resignation: Andrew will be required to provide us with 6 months’ notice of resignationNon-compete / confidentiality / non-solicit: We will get as much protection for IMAX as possible under UK lawIMAX CORPORATIONEXHIBIT 10.31EMPLOYMENT AGREEMENTThis Employment Agreement dated and effective as of May 17, 1999 (the “Agreement”), is made betweenIMAX LTD.a corporation organizedunder the laws of Ontario(hereinafter referred to as the “Company”)OF THE FIRST PARTAndIMAX CORPORATIONa corporation organizedunder the laws of Canada(Imax Corporation, together with all its subsidiaries and affiliates are hereinafter referred to as “Imax”)OF THE SECOND PARTAndROBERT D. LISTERof the Town of Scotch Plains in theState of New Jersey(hereinafter referred to as the “Executive”)OF THE THIRD PARTWHEREAS, the Company wishes to enter into this Agreement to engage the Executive to provide services to the Company, and the Executive wishes tobe so engaged, pursuant to the terms and conditions hereinafter set forth;AND WHEREAS the Executive is engaged to provide services to the Company as its Senior Vice President, Legal Affairs and General Counsel;NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1.EMPLOYMENT AND DUTIES1.1 Employment. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to serve, as Senior Vice President, Legal Affairs andGeneral Counsel of the Company, upon the terms and conditions herein contained. The Executive’s primary responsibilities shall be to organize and managethe legal affairs generally of the Company and to perform such other duties commensurate with his position with the Company as are reasonably designatedby the senior operating officer of the Company, which position is currently held by the Co-Chief Executive Officers of the Company. The Executive shall serveat all times as the Company’s chief legal officer and all members of the Company’s Legal Department shall report, directly or indirectly, to the Executive. TheExecutive agrees to serve the Company faithfully and to the best of his ability under the direction of the senior operating officer of the Company. The Executiveshall report to the senior operating officer of the Company on substantially all of his activities. During his employment, the Executive will be appointed as anOfficer of Imax Corporation, although he will not be employed by that entity.1.2 Exclusive Services. Except as may otherwise be approved in advance by the senior operating officer of the Company, the Executive shall devote his fullworking time throughout the Employment Term (as defined in Section 1.3) to the services required of him hereunder. The Executive shall render his servicesexclusively to the Company and its subsidiaries and affiliates during the Employment Term, and shall use his best efforts, judgment and energy to improveand advance the business and interests of the Company in a manner consistent with the duties of his position.1.3 Term of Employment. The Executive’s employment under this Agreement shall commence on the date hereof (the “Commencement Date”) and shallterminate on the earlier of (i) the second anniversary of the Commencement Date, or (ii) termination of the Executive’s employment pursuant to this Agreement.The period commencing as of the Commencement Date and ending on the second anniversary of the Commencement Date or such later date to which the termof the Executive’s employment under this Agreement shall have been extended is hereinafter referred to as the “Employment Term”.1.4 Place of Employment. During the Employment Term the Executive will, subject to work-related travel, principally work at the Company’s offices in NewYork City and, as requested or as required by circumstance, at the offices of the Company in Mississauga and Los Angeles. The Executive shall spend thebalance of his working time in such location or locations as are necessary and appropriate for the performance of the duties of the Executive, subject to thedirection of the senior operating officer of the Company. -2-1.5 Reimbursement of Expenses. The Company shall reimburse the Executive for reasonable travel and other business expenses incurred by him in thefulfilment of his duties hereunder in accordance with Company practices consistently applied. 2.COMPENSATION2.1 Base Salary. During his employment under this Agreement, the Executive shall be paid a base salary (“Base Salary”) of no less than US$ 200,000 subjectto annual review. The Executive shall be paid no less frequently than monthly in accordance with the Company’s payroll practices.2.2 Bonus. In addition to the Base Salary, during the Employment Term the Executive shall be entitled to participate in the management bonus plan of theCompany which applies to senior executives of the Company. The Executive shall participate in that plan on the basis that the target annual bonus pooleligibility of the Executive shall be 30% of his Base Salary in any year, which will entitle the Executive to earn a bonus, according to the terms of the bonusplan, of up to 45% of his Base Salary. Notwithstanding the foregoing, the bonus to be paid to the Executive in respect of 1999 shall be not less than US$38,100 (the “Guaranteed Bonus”), which shall be paid at the time bonuses are scheduled to be paid to other senior managers participating in the plan. TheExecutive acknowledges that the said bonus plan may be changed from time to time by the Company without notice to or any requirement to obtain the consentof the Executive and without the Executive having any claim against the Company with respect to any changes thereto, including any claims of ConstructiveDismissal. Following any changes to the said plan, the Executive will be given notice of the changes in the same manner as are other executives of theCompany of the Executive’s stature. Any annual bonus will be prorated for any part calendar year of employment hereunder. -3-2.3 Stock Options. Effective as soon as is practicable after the Commencement Date, the Executive shall be granted non-qualified options (the “Options”) topurchase 25,000 shares of common stock of Imax Corporation (the “Common Shares”), at an exercise price per Common Share equal to the Fair MarketValue, as defined in Imax Corporation’s Amended Stock Option Plan (the “Option Plan”). Twenty percent (20%) of the Options shall vest and becomeexercisable on each of the first five anniversary dates of the grant date. Effective on the first anniversary of the Commencement Date, the Executive shall begranted non-qualified options to purchase at least 15,000 Common Shares at an exercise price per Common Share equal to the Fair Market Value on that dateand subject to a five year, 20% per annum vest schedule. The options granted hereunder shall be subject to the terms and conditions of the Option Plan and thestock option agreements to be entered into between the Company and the Executive as of the applicable date of grant pursuant to, and in accordance with, theterms of the Option Plan; provided, however that any of the said options, together with all other options granted to the Executive under Imax Corporation’sOption Plan, which are not yet exercisable shall become immediately exercisable in the event of both of (a) a change in control of the Company i.e. any person,or group of persons acting in concert, other than Bradley J. Wechsler and Richard L. Gelfond, acquiring greater than fifty percent (50%) of the outstandingcommon shares of Imax Corporation, whether by direct or indirect acquisition or as a result of a merger or reorganization and (b) the occurrence of one or moreof the following: (i) Bradley J. Wechsler and Richard L. Gelfond cease to be Co-Chief Executive Officers of the Company; (ii) the Executive’s termination fromthe Company Without Cause; (iii) the diminution of the Executive’s title and/or responsibilities;or (iv) the Executive being asked to relocate more than 30 milesfrom his then current office in New York. 3.EXECUTIVE BENEFITS3.1 General. The Executive shall, during the Employment Term, receive Executive benefits including vacation time, medical benefits, disability and lifeinsurance, all at least consistent with those established by the Company for its other key executives at a level commensurate with that of the Executive.Without limitation, however, the Executive shall be entitled to the following benefits: (i)the greater of: four (4) weeks’ paid vacation, or the amount of paid vacation to which the Executive is entitled in accordance with the Company’svacation policy, throughout the Employment Term (ii)such audio/visual, computer, fax, cellular telephone and other like equipment as may be necessary in connection with the performance of theExecutive’s responsibilities shall be made available to the Executive; (iii)a monthly automobile allowance of US$ 850.00, together with all associated operating expenses and parking garage expenses (which allowancecan, in total or a portion thereof, at Executive’s option, be taken as additional compensation); -4- (iv)a full time administrative assistant located in the New York offices of the Company; and (v)an office at the Company’s Headquarters in Mississauga. 4.TERMINATION OF EMPLOYMENTDefinitions. As used in this Article 4, the following terms have the following meanings:(a) “Termination Payment” means each of the following amounts to the extent that such amounts are due to be paid to and including the date upon which theExecutive’s employment is terminated (i) Base Salary and automobile allowance, (ii) unreimbursed business expenses as outlined in Section 1.5, (iii) anyamounts to be paid pursuant to the terms of any benefit plans of the Company in which the Executive participates or pursuant to any policies of the Companyapplicable to the Executive, including the management bonus plan referred to in Section 2.2, calculated up to and including such date; and (iv) anyoutstanding vacation pay calculated up to and including such date.(b) “Without Cause” means termination of the Executive’s employment by the Company other than for Cause (as defined in Section 4.2), death or disability(as set forth in Section 5).4.1 Termination Without Cause4.1.1 General. Subject to the provisions of Sections 4.1.2, 4.1.3 and 6, if, prior to the expiration of the Employment Term, the Executive’s employment isterminated by the Company Without Cause, the Company shall pay the Termination Payment then due to be paid within 30 days of the date of terminationand shall continue to pay the Executive the Base Salary, automobile allowance and Executive’s target bonus (the “Target Bonus”) (on a pro-rated basis)pursuant to the terms of the management bonus plan referred to in Section 2.2, for the remainder of the Employment Term (such period being referred tohereinafter as the “Severance Period”), either at such intervals as the same would have been paid had the Executive remained in the active service of theCompany including the applicable portion of the Target Bonus, or, at the option of the Company, by immediate payment to the Executive of the remainingBase Salary, automobile allowance and Target Bonus which would be payable during the Severance Period, provided however that the Severance Period shallbe a minimum of six months in duration. Upon such termination, the Executive shall also be entitled to continue to receive his employment benefits referred toin Section 3.1 at the Company’s expense (to the extent paid for by the Company as at the date of termination) and subject to the consent of the applicableinsurers.The Executive agrees that the Company may deduct from any payment of Base Salary to be made during the Severance Period the benefit plan contributionswhich are to be made by the -5-Executive during the Severance Period in accordance with the terms of all benefit plans for the minimum period prescribed by law. The Executive shall have nofurther right to receive any other compensation or benefits after such termination of employment except as are necessary under the terms of the Executive benefitplans or programs of the Company or as required by applicable law. Payment of Base Salary, automobile allowance and Target Bonus and the continuation ofthe aforementioned Executive benefits during the Severance Period as outlined above shall be deemed to include all termination and severance pay to which theExecutive is entitled pursuant to applicable statute law and common law. The date of termination of employment Without Cause shall be the date specified in awritten notice of termination to the Executive and does not include the Severance Period.4.1.2 Fair and Reasonable The parties confirm that notice and pay in lieu of notice provisions contained in Subsection 4.1.1 are fair and reasonable and theparties agree that upon any termination of this Agreement Without Cause, the Executive shall have no action, cause of action, claim or demand against theCompany or Imax or any other person as a consequence of such termination other than to enforce Section 4.1.1.4.1.3 Conditions Applicable to the Severance Period. If, during the Severance Period, the Executive breaches his obligations under Article 7 of this Agreement,the Company may, upon written notice to the Executive, terminate the Severance Period and cease to make any further payments or provide further benefits asdescribed in Section 4.1.1.4.2 Termination for Cause; Resignation. At any time prior to the expiration of the Employment Term the Executive’s employment may be terminated by theCompany immediately upon notice for Cause. If, prior to the expiration of the Employment Term, the Executive’s employment is terminated by the Companyfor Cause, or the Executive resigns from his employment hereunder, the Executive shall only be paid, within 15 days of the date of such termination orresignation, the Termination Payment, then due to be paid. The Executive shall have no further right to receive any other compensation or benefits after suchtermination or resignation of employment, except as determined in accordance with the terms of the Executive benefit plans or programs of the Company. Thedate of termination for Cause shall be the date specified in a written notice of termination to the Executive, which notice shall set forth the basis for thetermination. The date of resignation shall be sixty (60) days following the date or receipt of notice of resignation from the Executive to the Company. -6-4.3 Cause. Termination for “Cause” shall mean termination of the Executive’s employment because of: (i)the cessation of the Executive’s ability to work legally in the United States or Canada other than for reasons not within the Executive’s reasonablecontrol; (ii)any act or omission that constitutes a material breach by the Executive of any of his obligations under this Agreement, which breach has not beenremedied within thirty (30) days after written notice specifying such breach has been given to the Executive by the Company; (iii)the continued failure or refusal of the Executive to perform the duties reasonably required of him as Senior Vice President, Legal Affairs andGeneral Counsel; (iv)any material violation by the Executive of any Canadian or United States federal, provincial, state or local law or regulation applicable to thebusiness of the Company or Imax, which violation is injurious to the financial condition or business reputation of the Company or Imax, or theExecutive’s conviction of a felony or commission of an indictable offense for which he is not pardoned, or any perpetration by the Executive of acommon law fraud; (v)any other action by the Executive which is materially injurious to the financial condition or business reputation of, or is otherwise materiallyinjurious to, the Company or Imax, or which results in a violation by the Company or Imax of any Canadian or United States federal, provincial,state or local law or regulation applicable to the business of the Company or Imax, which violation is injurious to the financial condition orbusiness reputation of the Company or Imax.4.4 General Upon any termination of the Executive’s employment, the Executive will immediately cease to be an Officer of the Company and ImaxCorporation and will sign appropriate forms of resignation indicating this. -7-5.DEATH OR DISABILITYIn the event of termination of employment by reason of death or Permanent Disability (as hereinafter defined), the Executive (or his estate, asapplicable) shall be paid the Termination Payment then due to be paid within 30 days of the date of such termination of employment. Both the employment ofthe Executive and the entitlement of the Executive to be paid amounts under Section 4.1.1, in respect of the Severance Period, shall terminate immediately andwithout notice upon his death or upon his Permanent Disability (as hereinafter defined). Any benefits thereafter shall be determined in accordance with thebenefit plans maintained by the Company, and the Company shall have no further obligation hereunder. For purposes of this Agreement, “PermanentDisability” means a physical or mental disability or infirmity of the Executive that prevents the normal performance of substantially all his duties under thisAgreement as an Executive of the Company, which disability or infirmity shall exist for any continuous period of 180 days. The parties agree that suchPermanent Disability cannot be accommodated short of undue hardship. 6.MITIGATIONSubject to Section 7.1 and 7.2, the Executive shall be required to mitigate the amount of any payment provided for in Section 4.1.1 (other than theTermination Payment) by seeking other employment or remunerative activity reasonably comparable to his duties hereunder, and, upon Executive’s obtainingsuch other employment or remunerative activityany payment to be made by the Company under Section 4.1.1 (other than the Termination Payment) will bereduced by a total of one-half (1/2) of the amount of such payment prior to the Executive’s obtaining new employment or remunerative activity. The Executiveshall be required as a condition of any payment under Section 4.1.1 (other than the Termination Payment) promptly to disclose to the Company any suchmitigation compensation. -8-7.NON-SOLICITATION, CONFIDENTIALITY, NON-COMPETITION7.1 Non-solicitation. For so long as the Executive is employed by the Company or receiving payment hereunder and continuing for two years thereafter,notwithstanding whether the Executive’s employment is terminated with or without Cause or whether the Executive resigns, the Executive shall not, without theprior written consent of the Company and Imax, directly or indirectly, for the Executive’s own benefit or the benefit of any other person, whether as a soleproprietor, member of a partnership, stockholder or investor (other than a stockholder or investor owning not more than a 5% interest), officer or director of acorporation, or as a trustee, executive, associate, consultant, principal or agent of any person, partnership, corporation or other business organization or entityother than the Company or Imax: (x) solicit or endeavour to entice away from Imax, any person or entity who is, or, during the then most recent 12-monthperiod, was employed by, or had served as an agent or consultant of, the Company and/or Imax; or (y) solicit, endeavour to entice away or gain the custom of,canvass or interfere in the Company’s and/or Imax’s relationship with any person or entity who is, or was within the then most recent 12-month period, asupplier, customer or client (or reasonably anticipated to become a supplier, customer or client) of the Company and/or Imax and with whom the Executivehad dealings during his employment with the Company. The Executive confirms that all restrictions in this Section are reasonable and valid and waives alldefences to the strict enforcement thereof.7.2 Non-Competition For so long as the Executive is employed by the Company or receiving payment hereunder and continuing for a period of two years afterthe date of the termination of the employment of the Executive with the Company, notwithstanding whether the Executive’s employment is terminated with orwithout Cause or whether the Executive resigns, the Executive shall not, without the prior written consent of the Company and Imax, directly or indirectlyanywhere within Canada, the United States, Europe or Asia, as a sole proprietor, member of a partnership, stockholder or investor (other than a stockholderor investor owning not more than a 5% interest), officer or director of a corporation, or as a trustee, Executive, associate, consultant, principal or agent of anyperson, partnership, corporation or other business organization or entity other than Imax, render any service to or in any way be affiliated with a competitor (orany person or entity that is, at the time the Executive would otherwise commence rendering services to or become, affiliated with such person or entity,reasonably anticipated to become a competitor) of Imax (a “Competitor”), which is engaged or reasonably anticipated to become engaged in designing orsupplying large format theatres, designing or distributing projection or sound systems for large format theatres, designing or supplying motion simulationattractions or producing or distributing films specifically for large format theatres or motion simulation attractions. The Executive confirms that all restrictionsin this Section are reasonable and valid and waives all defenses to the strict enforcement thereof. -9-7.3 Confidentiality. The Executive covenants and agrees with Imax that he will not at any time during employment hereunder or thereafter, except inperformance of his obligations to the Company hereunder or with the prior written consent of the senior operation officer of the Company, directly or indirectly,disclose or use any secret or confidential information that he may learn or has learned by reason of his association with Imax. The term “confidentialinformation’ includes information not previously disclosed to the public or to the trade by Imax’s management, or otherwise in the public domain, with respectto Imax’s products, facilities, applications and methods, trade secrets and other intellectual property, systems, procedures, manuals, confidential reports,product price lists, customer lists, technical information, financial information, business plans, prospects or opportunities, but shall exclude any informationwhich (i) is or becomes available to the public or is generally known in the industry or industries in which Imax operates other than as a result of disclosureby the Executive in violation of his agreements under this Section 7.3 or (ii) the Executive is required to disclose under any applicable laws, regulations ordirectives of any government agency, tribunal or authority having jurisdiction in the matter or under subpoena or other process of law. The Executive confirmsthat all restrictions in this Section 7.3 are reasonable and valid and waives all defences to the strict enforcement thereof.7.4 Exclusive Property. The Executive confirms that all confidential information is and shall remain the exclusive property of Imax. All business records,papers and documents regardless of the form of their records kept or made by Executive relating to the business of Imax shall be and remain the property ofImax, and shall be promptly returned by the Executive to Imax upon any termination of employment.7.5 Injunctive Relief. Without intending to limit the remedies available to Imax, the Executive acknowledges that a material breach of any of the covenantscontained in Article 7 will result in material and irreparable injury to Imax for which there is no adequate remedy at law, that it will not be possible to measuredamages for such injuries precisely and that, in the event of such a breach or threat thereof, Imax shall be entitled to seek a temporary restraining order and/ora preliminary, interim or permanent injunction restraining the Executive from engaging in activities prohibited by Article 7 or such other relief as may berequired specifically to enforce any of the covenants in Article 7. The Executive waives any defences to the strict enforcement by Imax of the covenantscontained in Article 7. If for any reason it is held that the restrictions under Article 7 are not reasonable or that consideration therefor is inadequate, suchrestrictions shall be interpreted or modified to include as much of the duration and scope identified in Article 7 as will render such restrictions valid andenforceable.7.6 Representation. The Executive represents and warrants that he is not subject to any non-competition covenant or any other agreement with any party whichwould in any manner restrict or limit his ability to render the services required of him hereunder. -10-8.MISCELLANEOUS8.1 Notices. All notices or communications hereunder shall be in writing, addressed as follows: To the Company: Imax Ltd. 2525 Speakman Drive Mississauga, Ontario L5K 1B1 Telecopier No: (905) 403-6468 Attention: Legal Department To Imax: Imax Corporation 2525 Speakman Drive Mississauga, Ontario L5K 1B1 Telecopier No: (905) 403-6468 Attention: Legal Department To the Executive: Rob Lister 60 Clydesdale Road Scotch Plains, NJ 07076 Telecopier No: (908) 322-9034 All such notices shall be conclusively deemed to be received and shall be effective, (i) if sent by hand delivery, upon receipt or (ii) if sent by registered orcertified mail, on the fifth day after the day on which such notice is mailed. -11-8.2 Severability. Each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provisionof this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition orinvalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. The parties agree that Sections 4, 5, 6 and 7shall survive the termination of this Agreement.8.3 Assignment. This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of the Executive and the assigns and successorsof the Company and Imax, if any are permitted by law and provided that the Company and Imax and its assignee shall each remain liable to the Executive inthe event of any assignment, but neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Executive.The Executive expressly agrees that each of Imax and the Company my assigne any of its rights, interest or obligations hereunder to any affiliate of either ofthem without the consent of the Executive; provide, however, that no such assignment shall relieve the assignor of any of its obligations hereunder.8.4 Entire Agreement: Amendment. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts,arrangements or understandings between the Company and the Executive. This Agreement may only be amended at any time by mutual written agreement ofthe parties hereto.8.5 Withholding. The payment of any amount pursuant to this Agreement shall be subject to any applicable withholding and payroll taxes, and such otherdeductions as may be required under applicable law or the Company’s Executive benefit plans, if any. -12-8.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canadaapplicable therein without regard to principles of conflicts of laws.IN WITNESS WHEREOF, the Company and the Executive have duly executed and delivered this Agreement as of the 19th day of April, 1999. IMAX LTD: By: “John M. Davison” seal Name: John M. Davison Title: Chief Financial Officer By: “Mary C. Sullivan” Name: Mary C. Sullivan Title: Vice President, Human Resources & Administration IMAX CORPORATION: By: “John M. Davison” seal Name: John M. Davison Title: Chief Financial Officer By: “Mary C. Sullivan” Name: Mary C. Sullivan Title: Vice President, Human Resources & Administration SIGNED, SEALED AND DELIVERED EXECUTIVE: in the presence of: “Mary C. Sullivan”Witness “Robert D. Lister”Robert D. Lister -13-IMAX CORPORATIONEXHIBIT 10.32 IMAX CORPORATION2525 Speakman Drive, Sheridan ParkMississauga, Ontario, Canada L5K 1B1 To: Robert D. ListerFrom: Rich Gelfond and Brad WechslerDate: August 21, 2000As we discussed a few weeks back, among our top priorities as we go through the process of evaluating potential strategic options for the Company is theretention of our key staff members. Toward this end, we are providing our most valuable employees with incentives to remain with the Company during thisprocess and to be committed to, and focused on, advancing the business and supporting our continued operations. Thus, the Company is pleased to offer youthe following package of incentive payments and benefits, on and subject to the terms and conditions set forth below. Please read these terms and feel free tocall us or Mary Sullivan with any questions you may have.2000 Bonus: We are committing that the Company’s management bonus plan will be honored this year and bonuses for the calendar year 2000 will be paid inaccordance with past practice. If there is a Change of Control of the Company during 2000, we will ensure that any successor commits to honoring themanagement bonus plan for your calendar year 2000 bonus.Retention Bonus: You shall be eligible to receive a retention bonus of up to a total of US$215,000, based upon the following terms: (a) On July 1, 2001, youshall receive US$107,500, provided that you have not resigned from the Company or been terminated For Cause prior thereto, regardless of whether there hasbeen a Transaction; (b) if there is a Transaction, and you are terminated Without Cause after July 1, 2001, but within two (2) years of the completion of theTransaction, you shall receive (in addition to the July 1 payment) an additional US$107,500; (c) if there is a Transaction and you are terminated WithoutCause prior to July 1, 2001, you shall receive (in lieu of the July 1 payment) US$215,000.Severance: If a Transaction occurs and you are terminated Without Cause by the Company within two (2) years after the completion of the Transaction, youwill be entitled to a severance benefit at least equal to six (6) months of your base salary (at the time of such termination). This benefit will be payable, at theCompany’s option, in either a lump sum or by salary continuation in accordance with the Company’s normal payroll procedures. This payment shall be inaddition to any bonus that may be payable to you pursuant to the preceding paragraph. In the event you are entitled to other benefits in the nature of severance,whether under contract or law, the severance benefit payable under this paragraph shall be offset by the amount of such other severance benefits.The Company will require any successor to expressly assume and agree to perform the obligations under this letter agreement.Please make sure you have read the above and the attached terms and conditions and indicate your agreement with all of such terms and conditions byexecuting this letter agreement in the space provided below and returning it to Mary Sullivan. Sincerely,IMAX LTD.“Bradley J. WechslerBy: Bradley J. WechslerTitle: Co-CEO Agreed to and accepted,this 23rd day of August 2000:“Robert D. ListerRobert D. ListerTerms and Conditions of Retention Incentive PackageDefinitions:For purposes of this letter agreement, a “Change of Control” of the Company will be deemed to occur if (a) (i) there is a sale of more than 50% of the assetsof the Company to a third party (other than to a person or group including Brad Wechsler or Rich Gelfond); or (ii) any person or group (other than a person orgroup including Brad Wechsler or Rich Gelfond) acquires 50% or more of the voting power of the outstanding stock of the Company or the shareholders of theCompany immediately prior to any corporate transaction cease to own at least 50% of the voting power of the outstanding stock of the surviving entity (any ofthe above, a “Transaction”); and (b) immediately after the Transaction is completed, Brad Wechsler and Rich Gelfond either (i) are no longer co-CEOs of theCompany or (ii) do not have the power to determine your year-end bonus for calendar year 2000.For purposes of this letter agreement, termination “Without Cause” shall mean termination of your employment for any reason or no reason, including byvirtue of the Company’s decision not to renew or extend your employment agreement, other than For CauseFor purposes of this letter agreement, termination “For Cause” shall have the same meaning as defined in your employment agreement, and shall include asfurther grounds your breaching of the confidentiality provision of this letter agreement.Legal Terms and Conditions:The payments and benefits referred to herein are one-time-only payments and benefits, applicable to just one (1) Transaction and not to any subsequent suchevent.The terms of this letter agreement are strictly confidential. Your disclosure of these terms to any other person (aside from your immediate family, your legal,financial or other advisors or as required by law) shall subject you to the revocation of any or all of the payments and benefits provided herein, at the solediscretion of the Company.This letter agreement, together with your employment agreement, shall constitute the entire agreement between the parties hereto with respect to the subject matterof benefits in connection with a Change of Control or Transaction, and all promises, representations, understandings, arrangements and prior arrangementsrelating to such subject matter are merged and superseded by such agreements.Any payments made under this letter agreement shall be subject to all applicable federal, state, city or other taxes required under relevant law.This letter agreement shall be binding on and inure to the benefit of the Company and its successors and permitted assigns. This agreement shall also bebinding on and inure to the benefit of you and your heirs, executors, administrators and legal representatives.IMAX CORPORATIONEXHIBIT 10.33AMENDING AGREEMENTThis Amendment to Employment Agreement dated and effective as of April 4, 2001 (the “Amending Agreement”) is made between:IMAX CORPORATION, a corporation incorporated under the laws of Canada (hereinafter referred to as the “Company”),AndROBERT D. LISTER (the “Executive”)WHEREAS, the Company wishes to enter into this Amending Agreement to amend and extend the Employment Agreement dated as of May 17, 1999,between Imax Ltd, the Company and Executive (the “Agreement”), whereunder the Executive provides services to the Company, and the Executive wishes to socontinue such engagement, as hereinafter set forth;AND WHEREAS, on January 1, 2001 Imax Ltd. assigned all of its rights and obligations pursuant to the Agreement to the Company, and the Executive hasconsented to such assignment;NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties heretoagree as follows: 1.Section 1.1 of the Agreement shall be amended by the addition of the following language:“Effective April 2, 2001 the Executive shall serve as the Executive Vice President, Legal Affairs, General Counsel and Corporate Secretary.” 2.Section 1.3 of the Agreement shall be deleted and replaced with the following:“Section 1.3 Term of Employment. The Employee’s employment under this Agreement commenced on the 17th day of May, 1999 (the “CommencementDate”) and shall terminate on the earlier of (i) December 31, 2003, or (ii) the termination of the Employee’s employment pursuant to this Agreement. The periodcommencing as of the Commencement Date and ending on December 31, 2003 or such later date to which the term of the Employee’s employment under thisAgreement shall have been extended is hereinafter referred to as the “Employment Term.” 3.Section 2.1 of the Agreement shall be deleted and replaced with the following:“Section 2.1 Base Salary. Effective May 17, 2001, the Executive’s Base Salary shall be US$ 240,000. The co-CEO’s (or their successor(s)) and the Executiveshall revisit the Executive’s Base Salary on January 1, 2002 and January 1, 2003.”4.Section 4.1.1 of the Agreement shall be amended by deleting the first and second paragraphs and replacing as follows:“ Section 4.1.1 General. Subject to the provisions of Sections 4.1.2, 4.1.3 and 6, if prior to the expiration of the Employment Term, the Executive’semployment is terminated by the Company Without Cause, the Company shall pay the Termination Payment then due to be paid within 30 days of the date oftermination and shall continue to pay the Executive the Base Salary, automobile allowance and Executive’s target bonus (the “Target Bonus”) (on a proratedbasis) pursuant to the terms of the management bonus plan referred to in Section 2.2, for the remainder of the Employment Term (such period being referred tohereinafter as the “Severance Period”), either at such intervals as the same would have been paid had the Executive remained in the active service of theCompany including the applicable portion of the Target Bonus, or, at the option of the Company, by immediate payment to the Employee of the remainingBase Salary, automobile allowance and Target Bonus which would be payable during the Severance Period; provided however that the Severance Period shallbe a minimum of twelve (12) months in duration. Upon such termination, the Executive shall also be entitled to continue to receive his employment benefits atthe Company’s expense (to the extent paid for by the Company as at the date of termination) and subject to the consent of the applicable insurers. TheExecutive agrees that the Company may deduct from any payment of Base Salary to be made during the Severance Period the benefit plan contributions whichare to be made by the Executive during the Severance Period in accordance with the terms of all benefit plans for the minimum period prescribed by law. TheExecutive shall have no further right to receive any other compensation after such termination except as are necessary under the terms of the Executive benefitplans or programs of the Company or as required by applicable law. Payment of Base Salary, automobile allowance and Target Bonus and the continuation ofthe aforementioned Executive benefits during the Severance Period as outlined above shall be deemed to include all termination and severance pay to which theExecutive is entitled pursuant to applicable statute law and common law. The date of termination of employment Without Cause shall be the date specified in awritten notice of termination to the Executive and does not include the Severance Period.Except as amended herein, all other terms of the Agreement and Amending Agreement shall remain in full force, unamended.IN WITNESS WHEREOF, the Company and the Executive have duly executed and delivered this Amending Agreement on this 4th day of April, 2001 IMAX CORPORATION By: “Richard L. Gelfond” Name: Richard L. Gelfond Title: Co-Chairman & Co-Chief Executive OfficerSIGNED, SEALED AND DELIVERED EXECUTIVE:in the presence of: “Yasmin Best” “Robert D. Lister”Witness Robert D. ListerIMAX CORPORATIONEXHIBIT 10.36FOURTH AMENDING AGREEMENTThis Amendment to Employment Agreement dated as of October 5, 2006 (the “Amending Agreement”) is made between:IMAX CORPORATION, a corporation incorporated under the laws of Canada (hereinafter referred to as the “Company”),andROBERT D. LISTER (the “Executive”)WHEREAS, the Company wishes to enter into this Amending Agreement to amend and extend the Employment Agreement dated as of May 17, 1999between Imax Ltd, the Company and Executive, as modified and amended by those Amending Agreements dated as of April 4, 2001, January 1, 2004 andFebruary 14, 2006 (together, the “Agreement”), whereunder the Executive provides services to the Company, and the Executive wishes to so continue suchengagement, as hereinafter set forth;AND WHEREAS, on January 1, 2001 Imax Ltd. assigned all of its rights and obligations pursuant to the Agreement to the Company, and the Executive hasconsented to such assignment;NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties heretoagree as follows:1. Section 4(b) of the Agreement shall be amended by adding the following:“Without Cause” shall also mean the termination of Executive’s employment at Executive’s election in the event that each of Bradley J. Wechsler and RichardL. Gelfond cease to be CEO of the Company (an “Elective Termination”), provided, however, that Executive may not make such Elective Termination prior tosix (6) months following the date that each of Messrs. Wechsler and Gelfond have ceased to be CEO of the Company. In the event of an Elective Termination,Executive shall have no obligation to mitigate the amounts provided in Section 4.1.1.2. Section 6 of the Agreement shall be amended by adding the following:Notwithstanding anything herein to the contrary, in the event that (a) there is a change in control of the Company i.e. any person, or group of persons acting inconcert, other than Bradley J. Wechsler and Richard L. Gelfond, acquiring greater than fifty percent (50%) of the outstanding common shares of theCompany, whether by direct or indirect acquisition or as a result of a merger or reorganization (a “Change in Control”) and (b) each of Bradley J. Wechslerand Richard L. Gelfond cease to be CEO of the Company, then Executive may elect to terminate his employment and such termination will be deemed to be atermination Without Cause (a “Change in Control Election”), provided, however, that Executive may not make such Change in Control Election prior to three(3) months following the date that each of Messrs. Wechsler and Gelfond have ceased to be CEO of the Company. A Change of Control Election shall bedeemed to be a Non-Mitigation Event as described in this Section 6, and in the event of a Change of Control Election, (i) Executive shall have no obligation tomitigate the amounts provided in Section 4.1.1, and (ii) the Severance Period (as defined in Section 4.1.1) shall be a minimum of eighteen (18) months induration.3. The Executive shall receive a US$ 150,000 retention bonus (the “Retention Bonus”), payable as follows: (a) US$ 75,000 paid on June 1, 2007 if Executivehas not resigned or been terminated for Cause prior to such date, and (b) US$ 75,000 paid on December 31, 2007 if Executive has not resigned or beenterminated for Cause prior to such date. In the event that there is a Change in Control, any portion of the Retention Bonus not yet paid shall immediatelyaccelerate and be paid to Executive.Except as amended herein, all other terms of the Agreement shall remain in full force, unamended.IN WITNESS WHEREOF, the Company and the Executive have duly executed and delivered this Amending Agreement on this 5th day of October, 2006. IMAX CORPORATION By: “Richard L. Gelfond” Name: Richard L. Gelfond Title: Co-Chief Executive OfficerSIGNED, SEALED AND DELIVERED EXECUTIVE:in the presence of: “Pamela Brown” “Robert D. Lister”Witness Robert D. ListerIMAX CORPORATIONEXHIBIT 10.37FIFTH AMENDING AGREEMENTThis Amendment to Employment Agreement dated as of December 31st , 2007 (the “Amending Agreement”) is made between:IMAX CORPORATION, a corporation incorporated under the laws of Canada (hereinafter referred to as the “Company”),andROBERT D. LISTER (the “Executive”)WHEREAS, the Company wishes to enter into this Amending Agreement to amend and extend the Employment Agreement dated as of May 17, 1999between Imax Ltd, the Company and Executive, as modified and amended by those Amending Agreements dated as of April 4, 2001, January 1,2004, February 14th, 2006 and October 5th, 2006 (together, the “Agreement”), whereunder the Executive provides services to the Company, and the Executivewishes to so continue such engagement, as hereinafter set forth;AND WHEREAS, on January 1, 2001 Imax Ltd. assigned all of its rights and obligations pursuant to the Agreement to the Company, and the Executive hasconsented to such assignment.NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties heretoagree as follows:1. Effective on January 1, 2008 the Executive’s Title will be Senior Executive Vice President and General Counsel.2. Section 1.3 of the Agreement shall be deleted and replaced with the following:“Section 1.3 Term of Employment. The Employee’s employment under this Agreement commenced on the 17th day of May, 1999 (the “CommencementDate”) and shall terminate on the earlier of (i) January 1, 2010, or (ii) the termination of the Employee’s employment pursuant to this Agreement. The periodcommencing as of the Commencement Date and ending on January 1, 2010 or such later date to which the term of the Employee’s employment under thisAgreement shall have been extended is hereinafter referred to as the “Employment Term.”3. Section 2.1 of the Agreement shall be deleted and replaced with the following:“Section 2.1 Base Salary. Effective January 1, 2008, the Executive’s Base Salary shall be US$442,497. The Executive’s Base Salary shall be subject toreview in connection with his performance review in 2009.”4. Incentive Compensation. On the later of : (a) December 31st, 2007 and (b) if, on December 31st, 2007, the Company has material information which hasnot been publicly disclosed, the date which is fifteen (15) days after the date on which such information is publicly disclosed, the Executive shall be granted120,000 stock appreciation rights (“SARs”) which shall entitle the Executive to receive in cash from the Company any increase in the fair market value of thecommon shares of the Company from the fair market value thereof on the date hereof to the date of exercise of the SARs. 60,000 SARs shall vest on each ofDecember 31, 2008 and December 31, 2009. All SARs will have a 10-year term, commencing on the date of grant and, to the extent applicable, the SARs shallbe governed by the provisions of the Stock Option Plan of the Company (the “Plan”), including for greater certainty, the provisions relating to the calculationof the fair market value of common shares of the Company, resignation or termination; provided, however, that to the extent any provisions of the Planconflict with provisions of the Agreement, the provisions of the Agreement shall apply. The vesting of all SARs shall be accelerated upon a “change of control”as defined in the Agreement and shall be governed, to the extent applicable, by any other provisions in the Agreement regarding change of control. At any timeand from time to time after vesting, but subject to the insider trading policy of the Company in effect at that time which shall apply to the SARs as if they weresecurities covered thereby, the Executive shall be entitled to exercise some or all of the vested SARs by delivering notice of exercise in writing to one of the ChiefExecutive Officers of the Company. Within 10 business days after receipt of such notice in writing, the Company shall pay to the Executive the amount bywhich the fair market value of the common shares of the Company has increased from the fair market value on the date of grant to the fair market value on thedate of such notice, net of any applicable withholdings and any other amounts owing at that time by the Executive to the Company. Notwithstanding anythingto the contrary contained herein, the Company shall have the right but not the obligation to cancel at any time all, or from time to time any part, of the SARs,in any case upon notice in writing to the Executive and to replace the cancelled SARs with a grant of stock options under the Plan (the “Options”) provided that(i) such Options have no less favorable (to the Executive) material terms and conditions as, and are in such number as are of equivalent value to, the cancelledSARs, and (ii) the Company cannot replace cancelled SARs with stock options if such options have a higher exercise price than the fair market value of thecommon shares of the Company on December 31, 2007.The SARs (Options) granted hereunder shall otherwise be treated in accordance with the terms of Section 2.3 of the Agreement.Except as amended herein, all other terms of the Agreement shall remain in full force, unamended.IN WITNESS WHEREOF, the Company and the Executive have duly executed and delivered this Amending Agreement on this 31st day of December, 2007. IMAX CORPORATION By: “Bradley J. Wechsler” Name: Bradley J. Wechsler Title: Co-Chief Executive Officer By: “G. Mary Ruby” Name: G. Mary Ruby Title: Senior Vice President, Legal Affairs and Corporate SecretarySIGNED, SEALED AND DELIVERED EXECUTIVE:in the presence of: “Mary Barto” “Robert D. Lister”Witness Robert D. ListerIMAX CORPORATIONEXHIBIT 10.39Robert D. Lister Renewal – Term SheetJanuary 23, 2014Term: 4 years Base Salary: 2014 – $625k 2015 – $650k 2016 – $675k 2017 – $700kBonus Target: 60%LTI: $1.4M/annum = $5.6M total grant value • Terms: • Four annual grants of $1.4M (first grant after current blackout ends) • 2014: 50% stock options/50% RSU’s • 2015: 40% stock options/60% RSU’s • 2016: 33% stock options/67% RSU’s • 2017: 25% stock options/75% RSU’s • 4-year vesting (1/4 each year) • Upon termination after CIC, to the extent total value of vested options & RSU’s from these grants is less than $5.6M, severance will beincreased by difference.Other Changes • Termination/Severance: Definition of Termination without Cause will no longer include a resignation in the event RLG ceases to be CEO. • Change in Control: Second trigger on vesting of options/RSU’s will no longer be BJW & RLG ceasing to be co-CEOs, but will be limited to(i) termination without cause, (ii) diminution of title or responsibilities (including no longer reporting directly to CEO), or (iii) relocation.IMAX CORPORATIONEXHIBIT 10.43SECURITIES PURCHASE AGREEMENTSECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of May 5, 2008, by and between IMAX Corporation, a corporationincorporated under the federal laws of Canada (the “Company”), and each of the entities whose names appear on the signature page hereof (each, an“Investor” and collectively, the “Investors”).A. The Company wishes to sell to each Investor, and each Investor wishes to purchase, on the terms and subject to the conditions set forth in thisAgreement, common shares, without par value, of the Company (the “Common Shares”). The aggregate number of Common Shares purchased and soldpursuant to this Agreement shall be 2,726,447 Common Shares and shall collectively be referred to herein as the “Securities”. The Securities shall beallocated among the Investors as is set forth on the signature page hereto.B. The sale of the Securities by the Company to the Investors will be effected in reliance upon the exemption from securities registration afforded bySection 4(2) under the Securities Act.In consideration of the mutual promises made herein, and other good and valuable consideration, the receipt and sufficiency of which are herebyacknowledged, the Company and each Investor hereby agree as follows: 1.PURCHASE AND SALE OF THE SECURITIES.1.1 Closing. Upon the terms and subject to the satisfaction or waiver of the conditions set forth herein, the Company agrees to sell and the Investorsagree to purchase the Securities for a purchase price equal to an amount per Common Share calculated as the average closing price of the Common Shares onthe Nasdaq Global Market over the five (5) Trading Days ending on the last Trading Day prior to the later of (i) the date hereof and (ii) five (5) days prior tothe Closing Date (the “Per Share Price”). The aggregate purchase price shall be determined by multiplying the Per Share Price by the total number ofCommon Shares being sold hereunder (the “Purchase Price”). The date on which the closing of such purchase and sale occurs (the “Closing”) is hereinafterreferred to as the “Closing Date” and will be on or about May 8, 2008. If the Closing occurs on or before May 9, 2008, the Per Share Price will be $6.602,and the Purchase Price will be $18,000,000.00. The Closing will be deemed to occur at the offices of Shearman & Sterling LLP, 599 Lexington Avenue, NewYork, New York 10022, when (A) this Agreement has been executed and delivered by the Company and each Investor, (B) each of the conditions to theClosing described in Section 5 of this Agreement has been satisfied or waived as specified therein and (C) full payment of the Purchase Price has been madeby the Investors to the Company by wire transfer of immediately available funds against physical delivery by the Company of duly executed certificatesrepresenting the Securities being purchased by the Investors, registered in the name and address of the Investors as is set forth on the signature page hereto.1.2 Certain Definitions. When used herein, the following terms shall have the respective meanings indicated:“Affiliate” means, as to a specified Person, a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by,or is under common control with, the specified Person. For the purposes of this definition, “control” (including the terms “controlling” “controlled by” and“under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of aPerson, whether through the ownership of voting securities, by contract or otherwise.“beneficial ownership”, “beneficially own” and “beneficial owner” shall have the meaning set forth in Rule 13d-3 (without regard to the 60-day provision in paragraph (d)(1)(i)) of the Exchange Act.“Board of Directors” means the Company’s board of directors.“Business Day” means any day other than a Saturday, a Sunday or a day on which The NASDAQ Global Market is closed or on which banksin The City of New York are required or authorized by law to be closed.“Closing” has the meaning specified in Section 1.1 of this Agreement.“Closing Date” has the meaning specified in Section 1.1 of this Agreement.“Commission” means the Securities and Exchange Commission.“Common Shares” has the meaning specified in the preamble to this Agreement.“Exchange Act” means the Securities Exchange Act of 1934, as amended (or any successor act), and the rules and regulations thereunder (orrespective successors thereto).“Filing Deadline” has the meaning specified in Section 4.2(a) of this Agreement.“First Quarter Form 10-Q” means the Company’s Form 10-Q for the fiscal quarter ended March 31, 2008 provided to the Investors in draftform.“GAAP” means United States generally accepted accounting principles, applied on a consistent basis.“Governmental Authority” means any nation or government, any state, provincial or political subdivision thereof having jurisdiction over theCompany and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including withoutlimitation any stock exchange, securities market or self-regulatory organization.“Intellectual Property” has the meaning specified in Section 3.16 of this Agreement. 2“Investor Party” has the meaning specified in Section 4.7 of this Agreement.“Law” means any applicable federal, state, local or foreign or provincial law, statute, code, ordinance, rule, regulation, judgment, order,injunction, decree or agency requirement of or undertaking to or agreement with any Governmental Authority, including common law.“Material Adverse Effect” means, with respect to any Person, any fact, circumstance, event, change, effect or occurrence that, individually orin the aggregate with all other facts, circumstances, events, changes, effects or occurrences (i) has or would be reasonably expected to have a material adverseeffect on or with respect to the business, results of operation or financial condition of such Person and its Subsidiaries, if any, taken as a whole, or (ii) thatprevents or materially delays or materially impairs the ability of such Person to consummate the transactions contemplated by this Agreement.“Person” means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stockcompany, Governmental Authority or other entity.“Principal Market” means the NASDAQ Global Market or such other principal exchange or market on which the Common Shares are thenlisted or traded.“Prospectus” has the meaning specified in Section 4.2(c) of this Agreement.“Purchase Price” has the meaning specified in Section 1.1 of this Agreement.“Registration Deadline” has the meaning specified in Section 4.2(b) of this Agreement.“Registration Default” has the meaning specified in Section 4.4(e) of this Agreement.“Registration Penalty” has the meaning specified in Section 4.4(e) of this Agreement.“Registration Statement” has the meaning specified in Section 4.2(a) of this Agreement.“Registration Statement Termination Date” has the meaning specified in Section 4.2(c) of this Agreement.“Rule 144” means Rule 144 under the Securities Act or any successor provision.“SEC Reports” means (i) the Company’s Form 10-K for the fiscal year ended December 31, 2007 filed with the Securities and ExchangeCommission on March 17, 2008, (ii) each form, document, statement and report filed by the Company since March 17, 2008, and (iii) the First QuarterForm 10-Q. 3“Securities” has the meaning specified in the preamble to this Agreement.“Securities Act” means the Securities Act of 1933, as amended (or any successor act), and the rules and regulations thereunder (or respectivesuccessors thereto).“Subsidiary” means, with respect to any Person, any corporation or other entity of which at least a majority of the outstanding shares of stock orother ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or Persons performing similarfunctions) of such corporation or entity (regardless of whether or not at the time, in the case of a corporation, stock of any other class or classes of suchcorporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled bysuch Person or one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries.“Suspension” has the meaning specified in Section 4.4(b) of this Agreement.“Suspension Notice” has the meaning specified in Section 4.4(b) of this Agreement.“Takedown Notice” has the meaning specified in Section 4.4(c) of this Agreement.“Trading Day” means any day on which the Common Shares are purchased and sold on the Principal Market.“Trading Market” means the NASDAQ Global Market or the Toronto Stock Exchange, or any national securities exchange, market or trading orquotation facility on which the Common Shares are then listed or quoted.1.3 Other Definitional Provisions. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined.The words “hereof”, “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to anyparticular provision of this Agreement. 2.REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR.Each Investor hereby represents and warrants to the Company and agrees with the Company, that, as of the date hereof:2.1 Enforceability. Such Investor has the requisite power and authority to purchase the Securities to be purchased by it hereunder and to execute, deliverand perform its obligations pursuant to this Agreement. This Agreement constitutes, upon execution and delivery thereof, such Investor’s valid and legallybinding obligation, enforceable in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratoriumor other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally and (ii) general principles of equity. 42.2 Investor Status. At the time such Investor was offered the Securities, such Investor was and at the date hereof, is (i) an “accredited investor” asdefined in Rule 501 of Regulation D under the Securities Act, (ii) not formed or organized with the specific purpose of making an investment in the Companyand (iii) not a resident of or located in Canada. Such Investor’s financial condition is such that it is able to bear the risk of holding the Securities for anindefinite period of time and the risk of loss of its entire investment. Such Investor has such knowledge and experience in business and financial matters so asto enable it to understand the risks of and form an investment decision with respect to its investment in the Securities.2.3 Purchase Entirely for Own Account. Such Investor is acquiring the Securities for its own account and not with a view to, or for sale in connectionwith, any distribution of the Securities in violation of the Securities Act. Such Investor has no present agreement, undertaking, arrangement, obligation orcommitment providing for the disposition of the Securities.2.4 Information. Such Investor acknowledges that it has been provided with information regarding the business, operations and financial condition ofthe Company and has, prior to the date hereof, been granted the opportunity to ask questions of and receive answers from representatives of the Company, itsofficers, directors, employees and agents concerning the Company in order for such Investor to make an informed decision with respect to its investment in theSecurities. Such Investor has sought such accounting, legal and tax advice as it deems appropriate in connection with its proposed investment in theSecurities.2.5 Securities Not Registered in the United States. Such Investor understands that the Securities have not been registered under the Securities Act, byreason of their issuance by the Company in a transaction exempt from the registration requirements of the Securities Act, and that the Securities must continueto be held by such Investor until a subsequent disposition thereof is registered under the Securities Act, including pursuant to the Registration Statement, or isexempt from such registration.2.6 Securities Not Qualified in Canada. Such Investor also understands that the Securities will not be qualified for sale under the securities laws of anyprovince or territory of Canada.2.7 Reliance on Exemptions. Such Investor understands that the Securities are being offered and sold to it in reliance upon specific exemptions from theregistration requirements of U.S. federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations andwarranties of such Investor set forth in this Section 2 in order to determine the availability of such exemptions and the eligibility of such Investor to acquire theSecurities.2.8 Common Stock Ownership. Such Investor’s investment in the Securities is not for the purpose of acquiring, directly or indirectly, control of, andthey have no intent to acquire or exercise control of, the Company or to influence the decisions or policies of the Board of Directors. 52.9 Investors’ Financing. At the Closing, such Investor will have all funds necessary to pay to the Company the Purchase Price for the Securities beingpurchased by such Investor hereby in immediately available funds.2.10 Brokers. Such Investor has not retained, utilized or been represented by any broker or finder in connection with the transactions contemplated bythis Agreement whose fees the Company would be required to pay.2.11 No Governmental Review. Such Investor understands that no Governmental Authority has passed on or made any recommendation or endorsementof the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering ofthe Securities.2.12 No General Solicitation. Such Investor is not purchasing the Securities as a result of any advertisement, article, notice or other communicationpublished in a newspaper or magazine or similar media or broadcast over television or radio, whether closed circuit, or generally available, or any seminar,meeting or other conference whose attendees were invited by any general solicitation or general advertising.2.13 Trading in Common Shares. Since the date such Investor initially was contacted by the Company through the date of this Agreement, suchInvestor has not entered into any purchase or sale of Common Shares or executed any Short Sales. For purposes of this Section, “Short Sales” means alltypes of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short sales, swaps (including on a total return basis) and sales. SuchInvestor covenants that neither it nor any Person acting on its behalf or pursuant to any understanding with it, will engage in any transactions in the CommonShares (including Short Sales) prior to the time that the transactions contemplated by this Agreement are publicly disclosed.2.14 Reliance on Information. Such Investor has, in connection with such Investor’s decision to purchase the Securities, not relied upon anyrepresentations or other information (whether oral or written) other than as set forth in the representations and warranties of the Company contained herein andin the SEC Reports, and such Investor has, with respect to all matters relating to this Agreement and the offer and sale of the Securities, relied solely upon theadvice of such Investor’s own counsel and has not relied upon or consulted counsel of the Company. 3.REPRESENTATIONS AND WARRANTIES OF THE COMPANY.The Company hereby represents and warrants to each Investor and agrees with each Investor that, as of the date hereof:3.1 Organization, Good Standing and Qualification. The Company is duly organized, validly existing and in good standing under the laws of thejurisdiction of its organization, with all requisite power and authority to carry on its business as now conducted. Except as would not, individually or in theaggregate, result in a Material Adverse Effect, each of the Subsidiaries of the Company is duly organized, validly existing and in good standing under the lawsof the jurisdiction of its organization, with all requisite power and authority to carry on its business as now conducted. The Company and each of itsSubsidiaries is duly qualified to do business and is 6in good standing in each jurisdiction in which it conducts business except where the failure so to qualify has not had or would not have a Material AdverseEffect. Neither the Company nor any of its Subsidiaries is in violation of its certificate of incorporation, by-laws or other equivalent organizational orgoverning documents, except where the violation in the case of a Subsidiary of the Company would not, individually or in the aggregate, have a MaterialAdverse Effect.3.2 Authorization; Consents. The Company has the requisite corporate power and authority to enter into and perform its obligations under thisAgreement and to issue and sell the Securities to the Investors in accordance with the terms hereof. All consents, approvals, orders and authorizations requiredon the part of the Company or its Subsidiaries in connection with the execution, delivery or performance of this Agreement have been obtained or made, otherthan such consents, approvals, orders and authorizations the failure of which to make or obtain would not have a Material Adverse Effect.3.3 Enforcement. This Agreement has been duly executed and delivered by the Company. This Agreement constitutes the valid and legally bindingobligation of the Company, enforceable against it in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer,moratorium, reorganization or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally, (ii) generalprinciples of equity and (iii) with respect to the enforcement of any rights to indemnity and contribution, federal and state securities laws and principles ofpublic policy.3.4 SEC Reports. The Company has filed on a timely basis with the SEC all SEC Reports. The SEC Reports constitute all of the documents required tobe filed by the Company with the Commission under Section 13 or 14 of the Exchange Act since December 31, 2007. Each SEC Report other than the FirstQuarter Form 10-Q, as of the date of the filing thereof with the Commission (or if amended or superseded by a filing prior to the date hereof, then on the date ofsuch amending or superseding filing) or as of the date hereof in the case of the First Quarter Form 10-Q, complied in all material respects with therequirements of the Securities Act or Exchange Act, as applicable, and the rules and regulations promulgated thereunder. The SEC Reports, at the time theywere filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding filing) and as of thedate hereof, did not and do not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary inorder to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of their respective dates (or if amendedor superseded by a filing prior to the date hereof, then on the date of such amending or superseding filing), the financial statements of the Company includedin the SEC Reports (including, in each case, any related notes), including any SEC Reports filed after the date of this Agreement until the Closing, complied orwill comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission withrespect thereto as in effect at the time of filing. Such financial statements have been or will be prepared in accordance with GAAP consistently applied at thetimes and during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unauditedinterim statements, to the extent they may exclude footnotes or may be condensed or summary statements as permitted by Form 10-Q of the Commission) andfairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for theperiods then ended (subject, in the case of unaudited statements, to normal year-end adjustments). 73.5 Absence of Certain Changes. Except as otherwise disclosed in the SEC Reports, since December 31, 2007, the Company and its subsidiaries haveconducted their business in the ordinary course and, since such date, the Company has not suffered any change or effect that has resulted, or would result, ina Material Adverse Effect.3.6 Capitalization. The capitalization of the Company, including its authorized capital stock, the number of shares issued and outstanding, the numberof shares issuable and reserved for issuance pursuant to the Company’s stock option plans and agreements and the number of shares issuable and reservedfor issuance pursuant to securities exercisable for, or convertible into or exchangeable for any Common Shares, is as set forth in the SEC Reports. Alloutstanding shares of the Company have been duly authorized, validly issued, fully paid and are nonassessable and free of any liens or encumbrances createdby the Company and are not subject to preemptive rights. Other than as contemplated by this Agreement and as described in the SEC Reports, there are nooptions, warrants, calls, rights, commitments, preemptive rights, rights of first refusal or other agreements to which the Company is a party or by which it isbound obligating the Company to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of thecapital stock of the Company or obligating the Company to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. Nopreemptive right, co-sale right, right of first refusal or other similar right exists with respect to the Securities or the issuance and sale thereof. No furtherapproval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. Except as set forth in theSEC Reports, no holder of any of the securities of the Company or any of its Subsidiaries has any rights (“demand”, “piggyback” or otherwise) to have suchsecurities registered by reason of the intention to file, filing or effectiveness of the Registration Statement.3.7 Due Authorization; Valid Issuance. The Securities are duly authorized and, when issued in accordance with the terms of this Agreement, will beduly and validly issued, fully paid and nonassessable, free of pre-emptive or similar rights and free and clear of all liens, encumbrances and other restrictions(other than those arising under federal, provincial or state securities laws as a result of the private placement contemplated hereby).3.8 No Conflict. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not(i) conflict with, or result in any violation of any provisions of the Company’s charter, bylaws or any other organizational or charter document, (ii) conflictwith, result in any violation or breach of, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give toothers any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, lease, credit facility,debt, note, bond, mortgage, indenture or other instrument or obligation (evidencing a Company or Subsidiary debt or otherwise) or other understanding towhich the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound, or affected, except to theextent that such conflict, default, termination, amendment, acceleration or cancellation right would not have a Material Adverse Effect, or (iii) result in aviolation of any Law to which the 8Company or a Subsidiary is subject, or by which any property or asset of the Company or a Subsidiary is bound or affected, except to the extent that suchviolation would not have a Material Adverse Effect.3.9 General Solicitation; No Integration. Neither the Company nor any of its Affiliates, nor any person acting on its or their behalf, has engaged in ageneral solicitation or general advertising (within the meaning of Regulation D) of investors with respect to offers or sales of the Securities. Assuming theaccuracy of the Investors’ representations and warranties set forth in Section 2 of this Agreement, the Company has not, directly or indirectly, sold, offered forsale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which, to its knowledge, is or will be integratedwith the Securities sold pursuant to this Agreement.3.10 Listing and Maintenance Requirements. The Company has no action pending to delist the Common Shares from any Trading Market on which theCommon Shares are or have been listed or quoted, nor has the Company received any notification that any such Trading Market is currently contemplatingterminating such listing, and the Company has complied with all notification and filing requirements as may be required pursuant to the rule and regulationsof the Principal Market with respect the sale of Securities contemplated hereby.3.11 Compliance with Laws. The Company has complied with, is not in violation of, and has not received any notices of violation with respect to, anyfederal, state or local statute, law or regulation with respect to the conduct of its business, or the ownership or operation of its business, except for failures tocomply or violations which would not have a Material Adverse Effect.3.12 Disclosure. No statements by the Company contained in this Agreement, its exhibits and schedules, or any of the certificates or documents,required to be delivered by the Company to the Investors under this Agreement contain any untrue statement of material fact or omits (when read together withall such other statements) to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of thecircumstances under which they were made.3.13 Stockholder Consent. No consent or approval of the stockholders of the Company is required or necessary for the Company to enter into thisAgreement or to consummate the transactions contemplated hereby and thereby.3.14 Litigation. Except as otherwise disclosed in the SEC Reports, (i) there is no private or governmental action, suit, proceeding, claim, arbitration orinvestigation pending before any agency, court or tribunal, foreign or domestic, or, to the knowledge of the Company or any of its Subsidiaries, threatenedagainst the Company or any of its properties or any of its officers or directors (in their capacities as such), which would have a Material Adverse Effect, and(ii) there is no judgment, decree or order against the Company, or, to the knowledge of the Company, any of its respective directors or officers (in theircapacities as such) relating to the business of the Company, the presence of which would have a Material Adverse Effect. To the Company’s knowledge, nocircumstances exist that could form a valid basis for a claim against the Company as a result of the conduct of the Company’s business (including, withoutlimitation, any claim of infringement of any intellectual property right) that would have a Material Adverse Effect. 93.15 Governmental Permits. Each of the Company and its Subsidiaries has all necessary franchises, licenses, certificates and other authorizations fromany foreign, federal, state or local government or governmental agency, department, or body that are currently necessary for the operation of the business of theCompany and its Subsidiaries as currently conducted, except where the failure to currently possess would not have a Material Adverse Effect.3.16 Intellectual Property. Each of the Company and its Subsidiaries owns or possesses sufficient rights to use all patents, patent rights, trademarks,copyrights, licenses, inventions, trade secrets, trade names and know-how (collectively, “Intellectual Property”) that are necessary for the conduct of itsbusiness as now conducted except where the failure to currently own or possess would not have a Material Adverse Effect. Except as set forth in the SECReports, (i) neither the Company nor any of its Subsidiaries has received any notice of, or has any knowledge of, any infringement of asserted rights of athird party with respect to any Intellectual Property that, individually or in the aggregate, would have a Material Adverse Effect and (ii) neither the Companynor any of its Subsidiaries has received any notice of any infringement rights by a third party with respect to any Intellectual Property that, individually or inthe aggregate, would have a Material Adverse Effect. 4.OTHER AGREEMENTS OF THE PARTIES.4.1 Transfer Restrictions.(a) Each Investor covenants that the Securities will only be disposed of pursuant to an effective registration statement under, and in compliancewith the requirements of, the Securities Act (including pursuant to the Registration Statement) or pursuant to an available exemption from the registrationrequirements of the Securities Act, and in compliance with any applicable state securities laws. As the Securities will not be qualified for sale under thesecurities laws of any province or territory of Canada, each Investor agrees that it will not offer, sell or distribute any of the Securities, directly or indirectly, inCanada or to, or for the benefit of, any resident thereof before the date that is four months and one day after the Closing Date, and after such time, only inaccordance with Canadian securities law. In connection with any transfer of Securities other than pursuant to an effective registration statement (including theRegistration Statement) or to the Company, the Company may require the transferor to provide to the Company an opinion of counsel selected by thetransferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not requireregistration under the Securities Act. Notwithstanding the foregoing, the Company hereby consents to and agrees to register on the books of the Company andwith its transfer agent, without any such legal opinion, except to the extent that the transfer agent requests such legal opinion, any transfer of Securities in thefollowing circumstances:(x) as contemplated in the Registration Statement; 10(y) by an Investor to an Affiliate of such Investor, provided that the transferee certifies to the Company that (i) it is an Affiliate of theInvestor and (ii) it is an “accredited investor” as defined in Rule 501(a) under the Securities Act, and further provided that such Affiliate does notrequest any removal of any existing legends on any certificate evidencing the Securities; and(z) in connection with a bona fide pledge or hypothecation of any Securities under a margin arrangement with a broker-dealer or otherfinancial institution or the sale of any such Securities by such broker-dealer or other financial institution following such Investor’s default undersuch margin arrangement.(b) Each Investor agrees to the imprinting, so long as is required by this Section 4.1(b), of a legend on any certificate evidencing Securitiessubstantially to the following effect:“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATESSECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”). THE HOLDER HEREOF, BY PURCHASINGSUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE OFFERED,SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES INACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, (C) PURSUANT TO THEEXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IFAVAILABLE, (D) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT, OR(E) IN COMPLIANCE WITH CERTAIN OTHER PROCEDURES SATISFACTORY TO THE CORPORATION, IN EACH CASEIN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN QUALIFIED FOR SALE UNDER THE SECURITIES LAWSOF ANY PROVINCE OR TERRITORY OF CANADA. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES,AGREES FOR THE BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY NOT BE OFFERED, SOLD ORDISTRIBUTED, DIRECTLY OR INDIRECTLY, IN CANADA OR TO, OR FOR THE BENEFIT OF, ANY RESIDENT THEREOFBEFORE SEPTEMBER 9, 2008 AND AFTER SUCH TIME, ONLY IN ACCORDANCE WITH CANADIAN SECURITIES LAW. 11DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONSON STOCK EXCHANGES IN CANADA.”4.2 Registration Rights – Obligations of the Company. The Company shall:(a) subject to receipt of necessary information from the Investors, prepare and file with the Commission, on or before the date which is 210 daysfrom the date hereof (the “Filing Deadline”), a registration statement (the “Registration Statement”) to enable the resale of the Securities by the Investorsfrom time to time on the Principal Market or in privately-negotiated transactions;(b) use commercially reasonable efforts, subject to receipt of necessary information from the Investors, to cause the Registration Statement tobecome effective within 90 days after the Registration Statement is filed by the Company (the “Registration Deadline”);(c) prepare and file with the Commission such amendments and supplements to the Registration Statement and the prospectus used in connectiontherewith (the “Prospectus”) and take all other such actions (subject to Section 4.2.(d) and Section 4.2(e)) as may be necessary to keep the RegistrationStatement current and effective for a period not exceeding the earlier of (i) the date on which the Investors may sell all Securities then held by the Investorswithout restriction by the volume limitations of Rule 144(e) of the Securities Act, as determined by the Investors in their entire discretion or (ii) such time as allSecurities purchased by the Investors pursuant hereto have been sold pursuant to a Registration Statement (the “Registration Statement Termination Date”);(d) promptly furnish to the Investors with respect to the Securities registered under the Registration Statement such number of copies of theRegistration Statement, Prospectuses and preliminary Prospectuses in conformity with the requirements of the Securities Act and such other documents as theInvestors may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Securities by the Investors; provided, however,that the obligation of the Company to deliver copies of Prospectuses or preliminary Prospectuses to an Investor shall be subject to the receipt by the Companyof reasonable assurances from such Investor that such Investor will comply with the applicable provisions of the Securities Act and of such other securities orblue sky laws as may be applicable in connection with any use of such Prospectuses or preliminary Prospectuses;(e) file documents required of the Company for normal blue sky clearance in states specified in writing by the Investors; provided, however, thatthe Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has notso consented;(f) bear all expenses in connection with the procedures in paragraph (a) through (e) of this Section 4.2 and the registration of the Securitiespursuant to the Registration Statement (which shall include, for the avoidance of doubt, reasonable expenses of one counsel 12chosen by the Investors for the review of the Registration Statement), regardless of whether a Registration Statement becomes effective; provided, however,that reimbursement for expenses of one counsel chosen by the Investors for the review of the Registration Statement shall be limited to a maximum ofUS$50,000, in the aggregate, of such reasonable, actual fees and expenses; and(g) advise the Investors, promptly (i) after it shall receive notice or obtain knowledge of the issuance of any stop order by the Commissiondelaying or suspending the effectiveness of the Registration Statement or of the initiation or threat of any proceeding for that purpose; and it will promptly useits reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued,(ii) when the Prospectus or any Prospectus Supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment thereto, when the same has become effective; and (iii) subject to Section 4.2(d), after the Company shall receive notice or obtainknowledge of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, theProspectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions toor changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading.4.3 Registration Rights – Obligations of the Investors. Each Investor agrees that it will:(a) promptly notify the Company of any changes in the information set forth in the Registration Statement regarding such Investor or their plan ofdistribution;(b) after the Registration Statement has become effective, sell all of the Securities before any other Common Shares beneficially owned by suchInvestor or by any Affiliate of such Investor are sold;(c) promptly notify the Company when all of the Securities have been sold; and(d) promptly notify the Company at such time as the Investors may sell all Securities then held by the Investors without restriction by the volumelimitations of Rule 144(e) of the Securities Act and the date of such determination.4.4 Maintenance of Registration Statement.(a) Except in the event that either or both of paragraphs (d) or (e) below applies, the Company shall promptly (i) prepare and file from time to timewith the Commission a post-effective amendment to the Registration Statement or a supplement to the related Prospectus or a supplement or amendment to anydocument incorporated therein by reference or file any other required document so that such Registration Statement will not contain an untrue statement of amaterial fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and so that, as thereafterdelivered to purchasers of the Securities being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state amaterial fact required to be stated therein or 13necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) provide the Investors copies of anydocuments filed pursuant to Section 4.4(a)(i); and (iii) inform each Investor that the Company has complied with its obligations in Section 4.4(a)(i) (or that, ifthe Company has filed a post-effective amendment to the Registration Statement which has not yet been declared effective, the Company will notify theInvestors to that effect, will use its reasonable efforts to secure the effectiveness of such post-effective amendment as promptly as possible and will promptlynotify the Investors when the amendment has become effective).(b) Subject to paragraph (c) below, in the event of (i) any request by the Commission or any other federal or state governmental authority duringthe period of effectiveness of the Registration Statement for amendments or supplements to the Registration Statement or related Prospectus or for additionalinformation; (ii) the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of theRegistration Statement or the initiation of any proceedings for that purpose; (iii) the receipt by the Company of any notification with respect to the suspensionof the qualification or exemption from qualification of any of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding forsuch purpose; or (iv) any event or circumstance which necessitates the making of any changes in the Registration Statement or Prospectus, or any documentincorporated or deemed to be incorporated therein by reference, so that, in the case of the Registration Statement, it will not contain any untrue statement of amaterial fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in thecase of the Prospectus, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein ornecessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; then the Company shall cause to bereceived by the Investors a certificate in writing to the Investors (the “Suspension Notice”) to the effect of the foregoing and, upon receipt of such SuspensionNotice, each Investor will refrain from selling any Securities not already sold pursuant to the Registration Statement (a “Suspension”) until such Investor’sreceipt of copies of a supplemented or amended Prospectus prepared and filed by the Company, or until it is advised in writing by the Company that thecurrent Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference inany such Prospectus. Subject to paragraph (c) below, in the event of any Suspension, the Company will use commercially reasonable efforts to cause the useof the Prospectus so suspended to be resumed as soon as reasonably practicable after the delivery of a Suspension Notice to the Investors. In addition to andwithout limiting any other remedies (including, without limitation, at law or at equity) available to the Investors, the Investors shall be entitled to specificperformance in the event that the Company fails to comply with the provisions of this Section 4.4(b).(c) Notwithstanding anything in this Agreement to the contrary, if the Company shall furnish to the Investors a certificate (a “Takedown Notice”)signed by the President or Chief Executive Officer of the Company, stating that its Board of Directors has made the good faith determination (i) that continueduse by the Investors of the Registration Statement for purposes of effecting offers or sales of the Securities pursuant thereto would require, under the SecuritiesAct, premature disclosure in the Registration Statement (or the prospectus relating thereto) of material, nonpublic information concerning the Company, its 14business or prospects or any of its proposed material transactions, and (ii) that such premature disclosure would be materially detrimental to the Company,then (x) the Company may postpone the filing or effectiveness of such Registration Statement, or (y) suspend the right of the Investors to use the RegistrationStatement (and the prospectus relating thereto) for purposes of effecting offers or sales of the Securities pursuant thereto. Upon receipt of a Takedown Notice,each Investor will refrain from selling any Securities not already sold pursuant to the Registration Statement (a “Takedown”) until such Investor’s receipt ofcopies of a supplemented or amended Prospectus prepared and filed by the Company, or until it is advised in writing by the Company that the currentProspectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in anysuch Prospectus. Notwithstanding the foregoing, the Company shall not under any circumstances be entitled to exercise its right to postpone the filing oreffectiveness of, or suspend the use of, the Registration Statement more than two (2) times in any twelve (12) month period, and the aggregate number of daysduring which the filing or effectiveness of, or the suspension of the use of, the Registration Statement may be postponed or suspended shall not exceed ninety(90) days in any such (12) month period. Each Investor hereby covenants and agrees that it will not sell any Securities pursuant to the Registration Statementduring a period in which the ability to sell thereunder is suspended as set forth in this Section 4.4(c) and will maintain in confidence the fact and content ofany notice provided under this Section 4.4(c).The effectiveness of the Registration Statement may not be postponed and the rights of each Investor to sell Securities under the RegistrationStatement may not be suspended under this Section 4.4(c) unless the Company has similarly suspended distribution rights under any other effectiveregistration statement of which it is the registrant (except for registration statements on Form S-8) and has similarly suspended the rights of its officers anddirectors to trade in its securities for at least the same period.(d) Provided that a Suspension or a Takedown is not then in effect, each Investor may sell Securities under the Registration Statement, providedthat it arranges for delivery of a current Prospectus to the transferee of such Securities. Upon receipt of a request therefor, the Company has agreed to providean adequate number of current Prospectuses to the Investors and to supply copies to any other parties requiring such Prospectuses.(e) If (i) the Registration Statement is not filed on or before the Filing Deadline or declared effective by the Commission on or before the RegistrationDeadline, (ii) after the Registration Statement has been declared effective by the Commission, other than during a Takedown, sales of Securities cannot bemade by the Investors under the Registration Statement for any reason not within the exclusive control of the Investors or (iii) other than during a Takedown,an amendment or supplement to the Registration Statement, or a new registration statement, required to be filed pursuant to the terms of this Agreement is notfiled as required hereunder (each of the events described in the foregoing clauses (i), (ii) and (iii) being referred to herein as a “Registration Default”), theCompany shall make cash payments to the Investors (the “Registration Penalty”), as liquidated damages and not as a penalty, equal to three-quarters of onepercent (0.75%) of the Per Share Price for each of the Securities subject to the Registration Statement for the first 90-day period or portion thereof following theRegistration Default, and thereafter the Registration Penalty shall increase by an incremental three-quarters of one percent (0.75%) of the Per Share Price foreach of the Securities subject to 15the Registration Statement for each successive 90-day period or portion thereof during which the Registration Default exists and is continuing, provided that inno event shall the Registration Penalty exceed three percent (3.00%) of the Purchase Price, provided further that no Registration Penalty shall accrue after theRegistration Statement Termination Date, and provided further that no Registration Penalty shall accrue during any Takedown. Upon the cure of allRegistration Defaults, the accrual of the Registration Penalty will automatically cease. The Registration Penalty shall be computed based on the actual numberof days elapsed in each 90-day period in which a Registration Default exists, and each payment required to be made under this Section 4.4(e) shall be madewithin five (5) Business Days following the last day of each 90-day period in which a Registration Default exists. Any such payment shall be the solemonetary remedy available to the Investors pursuant to the terms hereof or otherwise.4.5 Use of Investor Name. Except as may be required by applicable law and/or this Agreement, the Company shall not use, directly or indirectly, thename of any Investor or the name of any Affiliate of any Investor in any advertisement, announcement, press release or other similar communication unless ithas received the prior written consent of such Investor for the specific use contemplated or as otherwise required by applicable law or regulation.4.6 Listing. The Company hereby agrees to use reasonable best efforts to maintain the listing and trading of its Common Shares on the NASDAQGlobal Market and the Toronto Stock Exchange (or another nationally recognized Trading Market). The Company further agrees, if the Company applies tohave the Common Shares traded on any other Trading Market, it will include in such application the Securities, and will take such other action as isnecessary or desirable to cause all of the Securities to be listed on such other Trading Market as promptly as possible.4.7 Indemnification of Investors. (a) The Company will indemnify and hold each Investor and, if applicable, their trustees, beneficiaries and agents(each, an “Investor Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including alljudgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Investor Party may suffer or incuras a result of or relating to any action instituted against an Investor or its Affiliates with respect to or based upon (i) in the case of the Registration Statement,any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein notmisleading, and, in the case of any Prospectus, any untrue statement of a material fact or any omission to state a material fact required to be stated therein ornecessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) any breach of the Company’srepresentations, warranties or covenants under this Agreement (unless such breach is based upon a breach of such Investor’s representations, warranties orcovenants under this Agreement or any violations by such Investor of state or federal securities laws or any conduct by such Investor which constitutes fraud,gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Investor Party in respect of which indemnity may be soughtpursuant to this Agreement, such Investor Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defensethereof with counsel of its own choosing. Any Investor Party shall have the right to employ separate counsel in any such action and participate in the defensethereof, but the fees and expenses of such counsel shall be at the expense of such Investor Party except to the extent 16that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of timefollowing such Investor Party’s written request that it do so, to assume such defense and to employ counsel or (iii) in such action there is, in the reasonableopinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Investor Party. Thefailure of an Investor Party to deliver written notice to the Company within a reasonable time of the delivery of notice of any such action, to the extent materiallyprejudicial to its ability to defend such action, shall relieve the Company of any liability to such Investor Party under this Section 4.7 with respect to suchaction, but the omission so to deliver written notice to the Company will not relieve the Company of any liability that it may have to such Investor Partyotherwise than under this Section 4.7 or with respect to any other action. The Company will not be liable to any Investor Party under this Agreement (i) for anysettlement by an Investor Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent,but only to the extent, that a loss, claim, damage or liability is attributable to such Investor Party’s fraud, gross negligence, willful misconduct or malfeasanceor to such Investor Party’s breach of any of the representations, warranties, covenants or agreements made by such Investor in this Agreement.(b) In the event that the indemnity provided in this Section 4.7 is unavailable or insufficient to hold harmless an Investor Party (other than byreason of exceptions provided herein), the Company agrees to contribute to the aggregate Losses to which such Investor Party may be subject in suchproportion as is appropriate to reflect the relative fault of the Company and such Investor Party in connection with the actions which resulted in such Lossesas well as any other relevant equitable considerations. The Company and the Investors agree that it would not be just and equitable if contribution weredetermined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above.Notwithstanding the provisions of this Section 4.7, no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act)shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation.4.8 Standstill.(a) Each Investor covenants and agrees that, except as set forth herein, neither such Investor nor any of its Affiliates shall directly or indirectly, inone transaction or a series of related transactions:(i) acquire, offer to acquire, or agree to acquire, directly or indirectly, by purchase or otherwise, (x) any securities or direct or indirect rightsto acquire any securities of the Company or any Subsidiary of the Company, or of any successor of the Company or any such Subsidiary, or(y) any assets of the Company or any division thereof or of any successor of the Company or any Subsidiary of the Company; provided,however, that the Investors shall be permitted to acquire, directly or indirectly, by purchase or otherwise, such number of securities or direct orindirect rights to acquire any securities of the Company as shall permit the Investors and their Affiliates to maintain their ownership percentage at19.9% of the total issued and outstanding Common Shares; 17(ii) seek or propose to influence or control the management or policies of the Company, make or in any way participate in, directly orindirectly, any “solicitation” of “proxies” (as such terms are used in the rules of the Commission) to vote any voting securities of the Company orany Subsidiary, or seek to advise or influence any person or entity with respect to the voting of any voting securities of the Company or anySubsidiary;(iii) make any public announcement with respect to, or submit a proposal for or offer of (with or without conditions), any merger,amalgamation, recapitalization, reorganization, business combination or other extraordinary transaction involving the Company or anySubsidiary or any of their securities or assets;(iv) enter into any discussions, negotiations, arrangements or understandings with any third party with respect to any of the foregoing, orotherwise form, join or in any way engage in discussions relating to the formation of, or participate in, a “group” within the meaning ofSection 13(d)(3) of the Exchange Act, or relating in any way to, the Company or any of its securities;(v) sell or otherwise transfer Common Shares to any Person or any Persons constituting a “group” within the meaning of Section 13(d)(3) ofthe Exchange Act, which after such sale or transfer would be the beneficial or record owner of 5% or more of the then outstanding CommonShares, unless each such Person agrees to be subject to the restrictions of this Section 4.8; provided, however, that the foregoing shall not applyto any sale or transfer of Common Shares in a bona fide public offering or ordinary broker transactions; or(vi) request the Company, directly or indirectly, to amend or waive any provision of this Section 4.8 in a manner that would require anypublic disclosure by the Company, such Investor or any other Person.(b) Each Investor’s obligations under this Section 4.8, except for the obligations under Section 4.8(a)(v), shall terminate immediately upon thefifth anniversary of this Agreement and each Investor’s obligations under Section 4.8(a)(v) shall terminate upon the earlier of (i) the fifth anniversary of thisAgreement and (ii) the date when the Investors and their Affiliates beneficially own less than 14.56% of the outstanding Common Shares. 5.CONDITIONS TO CLOSING.5.1 Conditions to Investors’ Obligations at the Closing. Each Investor’s obligations to effect the Closing, including without limitation its obligation topurchase the Securities at Closing, are conditioned upon the fulfillment (or waiver by such Investor in its sole and absolute discretion) of each of the followingevents as of the Closing Date: 5.1.1the representations and warranties of the Company set forth in this Agreement shall be true and correct in all material respects as of theClosing Date as if made on such date (except that to the extent that any such representation or warranty relates to a particular date, 18 such representation or warranty shall be true and correct in all material respects as of that particular date); provided, however, that suchrepresentations and warranties that are qualified by materiality or Material Adverse Effect shall be true and correct in all respects as soqualified; 5.1.2the Company shall have complied with or performed in all material respects all of the agreements, obligations and conditions set forth inthis Agreement that are required to be complied with or performed by the Company on or before the Closing; 5.1.3the Company shall have delivered to such Investor a certificate, signed by a Co-Chief Executive Officer of the Company or the ChiefFinancial Officer of the Company and dated as of the Closing Date, certifying (i) that the conditions specified in Sections 5.1.1 and 5.1.2above have been fulfilled, it being understood that such Investor may rely on such certificate as though it were a representation andwarranty of the Company made herein, (ii) all resolutions of the Board of Directors (and committees thereof) relating to the Agreement andthe transactions contemplated thereby and (iii) the incumbency of all officers of the Company executing the Agreements and any otheragreement or document contemplated thereby; 5.1.4the Company shall have delivered to such Investor opinions from McCarthy Tétrault LLP and/or Shearman & Sterling LLP, dated as ofthe Closing Date, covering the matters set forth in Exhibit A; 5.1.5the Company shall have delivered to such Investor a duly executed certificate representing the Securities being purchased by such Investorat the Closing; 5.1.6trading in the Common Shares shall not have been suspended by the Commission or any Trading Market (except for any suspensions oftrading of not more than one Trading Day solely to permit dissemination of material information regarding the Company) at any timesince the date of execution of this Agreement, and the Common Shares shall have been at all times since such date listed for trading on aTrading Market; and 5.1.7there shall be no injunction, restraining order or decree of any nature of any court or Government Authority of competent jurisdiction thatis in effect that restrains or prohibits the consummation of the transactions contemplated hereby.5.2 Conditions to Company’s Obligations at the Closing. The Company’s obligations to effect the Closing with each Investor are conditioned upon thefulfillment (or waiver by the Company in its sole and absolute discretion) of each of the following events as of the Closing Date: 5.2.1the representations and warranties of such Investor set forth in this Agreement shall be true and correct in all material respects as of theClosing Date as if made on such date (except that to the extent that any such representation or warranty relates to a particular date, suchrepresentation or warranty shall be true and correct in all material respects as of that date); provided, however, that such representationsand warranties that are qualified by materiality or Material Adverse Effect shall be true and correct in all respects as so qualified; 19 5.2.2such Investor shall have complied with or performed all of the agreements, obligations and conditions set forth in this Agreement that arerequired to be complied with or performed by the Investor on or before the Closing; 5.2.3there shall be no injunction, restraining order or decree of any nature of any court or Government Authority of competent jurisdiction thatis in effect that restrains or prohibits the consummation of the transactions contemplated hereby; and 5.2.4the Investors shall have tendered to the Company the Purchase Price for the Securities being purchased by it at the Closing by wiretransfer of immediately available funds in accordance with the wire transfer instructions set forth on Exhibit B hereto. 6.MISCELLANEOUS.6.1 Termination. This Agreement may be terminated by the Company or the Investors, by written notice to the other party, if the Closing has not beenconsummated by May 16, 2008; provided that no such termination will affect the right of any party to sue for any breach by the other party (or parties).6.2 Survival; Severability. The covenants and indemnities, agreements, representations and warranties made by the parties herein shall survive theClosing, provided, however, that the representations and warranties set forth or made by each Investor herein will terminate upon the final sale by suchInvestor of such Investor’s Securities. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal,unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that in such case the parties shall negotiate ingood faith to replace such provision with a new provision which is not illegal, unenforceable or void, as long as such new provision does not materially changethe economic benefits of this Agreement to the parties.6.3 Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors andpermitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party 20other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of thisAgreement, except as expressly provided in this Agreement. Each Investor may assign their respective rights and obligations hereunder, in connection with anyprivate sale or transfer of the Securities in accordance with the terms hereof, as long as, as a condition precedent to such transfer, the transferee executes anacknowledgment agreeing to be bound by the applicable provisions of this Agreement, in which case the term “Investor” shall be deemed to refer to suchtransferee as though such transferee were an original signatory hereto. The Company may not assign its rights or obligations under this Agreement without thewritten consent of the Investors.6.4 No Reliance. Each party acknowledges that (i) it has such knowledge in business and financial matters as to be fully capable of evaluating thisAgreement and the transactions contemplated hereby, (ii) it is not relying on any advice or representation of any other party in connection with entering into thisAgreement or such transactions (other than the representations made in this Agreement), (iii) it has not received from any other party any assurance orguarantee as to the merits (whether legal, regulatory, tax, financial or otherwise) of entering into this Agreement or the performance of its obligations hereunder,and (iv) it has consulted with its own legal, regulatory, tax, business, investment, financial and accounting advisors to the extent that it has deemed necessary,and has entered into this Agreement based on its own independent judgment and on the advice of its advisors as it has deemed necessary, and not on any view(whether written or oral) expressed by any other party.6.5 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Companyand each Investor will be entitled to seek specific performance under this Securities Purchase Agreement. The parties agree that monetary damages may not beadequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in anyaction for specific performance of any such obligation (other than in connection with any action for temporary restraining order) the defense that a remedy atlaw would be adequate.6.6 Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by, and construed in accordance with, the laws of the Stateof New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the Borough of Manhattan of theCity of New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby and hereby irrevocablywaives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that suchsuit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocablywaives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at theaddress in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereby waives all rightsto a trial by jury. 216.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which togethershall constitute one and the same instrument. This Agreement may be executed and delivered by facsimile transmission.6.8 Headings. The headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting thisAgreement.6.9 Notices. Any notice, demand or request required or permitted to be given by the Company or any Investor pursuant to the terms of this Agreementshall be in writing and shall be deemed delivered (i) when delivered personally or by verifiable facsimile transmission, unless such delivery is made on a daythat is not a Business Day, in which case such delivery will be deemed to be made on the next succeeding Business Day, (ii) on the next Business Day aftertimely delivery to an overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receiptrequested, postage prepaid), addressed as follows:If to the Company:IMAX Corporation110 East 59th StreetSuite 2100New York, New York 10022Attn: Robert D. Lister, Esq.Tel: (212) 821-0100Fax: (212) 371-7584with a copy (which shall not constitute notice) to:Jason R. Lehner, Esq.Shearman & Sterling LLP599 Lexington AvenueNew York, New York 10022Tel: (212) 848-4000Fax: (212) 848-7179If to the Investors:Kevin Douglas125 E Sir Francis Drake BoulevardLarkspur, California 94939-1860Tel: (415) 526-2200Fax: (415) 526-2214with a copy (which shall not constitute notice) to:James Black, Esq.Orrick, Herrington & Sutcliffe LLPThe Orrick Building405 Howard StreetSan Francisco, California 94105Tel: (415) 773-5700Fax: (415) 773-5759 226.10 Fees and Expenses. The Company shall pay all expenses incurred incident to the negotiation, preparation, execution, delivery and performance ofthis Agreement, including reasonable fees and expenses of the Investors’ legal advisers incurred on or prior to the Closing Date. The Company shall pay allTransfer Agent fees, stamp taxes and other taxes and duties levied in connection with the sale and issuance of their applicable Securities.6.11 Entire Agreement; Amendments. This Agreement constitutes the entire agreement between the parties with regard to the subject matter hereof,superseding all prior agreements or understandings, whether written or oral, between or among the parties. Except as expressly provided herein, neither thisAgreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company and the Investors, and no provision hereofmay be waived other than by a written instrument signed by the party against whom enforcement of any such waiver is sought. Any waiver or consent shall beeffective only in the specific instance and for the specific purpose for which given.[Signature Pages to Follow] 23IN WITNESS WHEREOF, the undersigned have duly executed this Securities Purchase Agreement as of the date first above written. IMAX CORPORATIONBy: /s/ Richard L. Gelfond Name: Richard L. Gelfond Title: Co-Chief Executive Officer K&M DOUGLAS TRUST JAMES DOUGLAS AND JEANDOUGLAS IRREVOCABLEDESCENDANTS’ TRUSTBy: /s/ Kevin Douglas By: /s/ Kevin Douglas Name: Kevin Douglas Name: Kevin Douglas Title: Trustee Title: TrusteeBy: /s/ Michelle M. Douglas By: /s/ Michelle M. Douglas Name: Michelle Douglas Name: Michelle Douglas Title: Trustee Title: TrusteeNumber of Securities: 1,172,372 Number of Securities: 736,141DOUGLAS FAMILY TRUST JAMES E. DOUGLAS IIIBy: /s/ James Douglas /s/ James E. Douglas Name: James Douglas Title: Trustee Number of Securities: 272,645By: /s/ Jean A.Douglas Name: Jean Douglas Title: Trustee Number of Securities: 545,289 In connection with the Securities Purchase Agreement, please provide the following information: 1.The exact name that your Securities are to be registered in (this is the name that will appear on your share certificate(s)). You may use a nominee name ifappropriate:Douglas Family Trust (545,289)James Douglas and Jean Douglas Irrevocable Descendants’ Trust (736,141)James E. Douglas III (272,645)K&M Douglas Trust (1,172,372) 2.The mailing address at which the Registered Holder listed in response to item 1 above would like to receive share certificate(s) and closing documents:c/o Douglas Telecommunications, Inc125 E. Sir Francis Drake Blvd., Ste. 400Larkspur, CA 94939 1.The Social Security Number or Tax Identification Number of the Registered Holder listed in response to item 1 above:Douglas Family Trust – 383-28-4799James Douglas and Jean Douglas Irrevocable Descendants’ Trust – 94-6729163James E. Douglas, III – 385-72-3328K&M Douglas Trust – 385-72-4026EXHIBIT AFORM OF LEGAL OPINIONSMcCARTHY TÉTRAULT LLP (1)The Company is a corporation duly organized, validly existing and in good standing under the federal laws of Canada. (2)The Securities have been duly authorized by all necessary corporate action on the part of the Company. The Securities, when issued, sold and deliveredagainst payment therefor in accordance with the provisions of the Securities Purchase Agreement will be validly issued, fully paid and nonassessable,and the issuance of the Securities will not be subject to any pre-emptive rights or similar rights restricting the transfer of the Securities under the CanadaBusiness Corporations Act or the Company’s Articles of Incorporation or By-Laws or, to our knowledge, otherwise. (3)The Company has full corporate power and corporate authority to enter into, perform, and consummate the transactions contemplated by the Agreement. (4)The Agreement has been duly authorized by all necessary corporate action on the part of Company. (5)The execution, delivery, and performance of the Agreement by Company and the consummation by Company of the transactions to be consummated atClosing do not conflict with or violate the Company’s charter, bylaws or any other organizational or charter document. (6)The execution, delivery and performance of the Agreement by Company and the consummation of the transactions contemplated thereby by Company tobe consummated at the Closing do not and will not require Company to obtain any consent, approval, authorization, license, waiver, qualification,order or permit of, or require the Company to make any filing with or notification to, any Canadian federal or Ontario governmental or regulatoryauthority, domestic or foreign, except (a) for compliance with applicable requirements, if any, of Canadian securities laws, (b) for compliance withapplicable requirements, if any, of The Toronto Stock Exchange, and (c) any filings, registrations and qualifications which if not made, would not beexpected to have a Material Adverse Effect.SHEARMAN & STERLING LLP (1)The Agreement has been duly executed and delivered by Company and is a legal, valid, and binding obligation of Company, enforceable againstCompany in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, arrangement,moratorium or other similar laws affecting creditors’ rights, and subject to general equity principles and to limitations on availability of equitable relief,including specific performance. (2)The offer, sale and issuance of the Securities to be issued in accordance with the Agreement are exempt from the registration requirements of Section 5 ofthe Securities Act of 1933, as amended.EXHIBIT BWIRE INSTRUCTIONS Destination Bank: WACHOVIA BANK N.A. NEW YORKABA Number: 026005092SWIFT: PNBPUS3NNYCBeneficiary’s Bank : BANK OF MONTREALINT’L BANKING H.O. MONTREALSWIFT: BOFMCAM2Beneficiary Customer: IMAX CORPORATIONAccount Number: 24774700073IMAX CORPORATIONEXHIBIT 21SUBSIDIARIES OF IMAX CORPORATION Company Name Jurisdiction of Organization Percentage Held by Registrant3183 Films Ltd. Canada 1001329507 Ontario Inc. Ontario 1002328764 Ontario Ltd. Ontario 1004507592 Canada Ltd. Canada 1006822967 Canada Ltd. Canada 1007096194 Canada Ltd. Canada 1007096267 Canada Ltd. Canada 1007096291 Canada Ltd. Canada 1007103077 Canada Ltd. Canada 1007109857 Canada Ltd. Canada 1007214316 Canada Ltd. Canada 1007550324 Canada Inc. Canada 1007550391 Canada Ltd. Canada 1007550405 Canada Ltd. Canada 1007742266 Canada Ltd. Canada 1007742274 Canada Ltd. Canada 100Animal Orphans 3D Ltd. Ontario 100Arizona Big Frame Theatres, L.L.C. Arizona 100Baseball Tour, LLC Delaware 33 1/3Coral Sea Films Ltd. Canada 100ILW Productions Inc. Delaware 100IMAX (Barbados) Holding, Inc. Barbados 100IMAX (Hong Kong) Holding, Limited Hong Kong 100IMAX China Holding, Inc. Cayman Islands 100IMAX China (Hong Kong), Limited Hong Kong 100IMAX (Shanghai) Multimedia Technology Co., Ltd. People’s Republic of China 100IMAX (Shanghai) Theatre Technology Services Co., Ltd. People’s Republic of China 100IMAX Chicago Theatre LLC Delaware 99IMAX 3D TV Ventures, LLC Delaware 100IMAX II U.S.A. Inc. Delaware 100IMAX Indianapolis LLC Indiana 100IMAX International Sales Corporation Canada 100IMAX Japan Inc. Japan 100IMAX Minnesota Holding Co. Delaware 100IMAX Music Ltd. Ontario 100IMAX Post/DKP Inc. (formerly DKP 70 MM Inc.) Delaware 100IMAX PV Development Inc. Delaware 100IMAX Rhode Island Limited Partnership Rhode Island 99IMAX (Rochester) Inc. Delaware 100IMAX Scribe Inc. Delaware 100IMAX Space Ltd. Ontario 100IMAX Space Productions Ltd. Canada 100IMAX Spaceworks Ltd. Canada 100IMAX Theatre Holding Co. Delaware 100IMAX Theatre Holdings (OEI), Inc. Delaware 100IMAX Theatre Management Company Delaware 100IMAX Theatre Services Ltd. Ontario 100IMAX U.S.A. Inc. Delaware 100Madagascar Doc 3D Ltd. Canada 100Magnitude Productions Ltd. Canada 100Nyack Theatre LLC New York 99Raining Arrows Productions Ltd. Canada 100Ridefilm Corporation Delaware 100Ruth Quentin Films Ltd. Canada 100Sacramento Theatre LLC Delaware 99Sonics Associates, Inc. Alabama 100Starboard Theatres Ltd. Canada 100Strategic Sponsorship Corporation Delaware 100Taurus-Littrow Productions Inc. Delaware 100The Deep Magic Company Ltd. Canada 100Walking Bones Pictures Ltd. Canada 100IMAX CORPORATIONEXHIBIT 23CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in (i) the Registration Statements on Form S-8 (No. 333-2076; No. 333-5720; No. 333-30970; No. 333-44412; No. 333-155262; No. 333-165400; No. 333-189274) and (ii) the Post-Effective Amendments No. 1 to Form S-8 (No. 333-5720, as amended andNo. 333-165400) of IMAX Corporation of our report dated February 20, 2014, relating to the financial statements, financial statement schedule listed underItem 15(a)(2) and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLPChartered Professional Accountants, Licensed Public AccountantsToronto, OntarioFebruary 20, 2014 PricewaterhouseCoopers LLP PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2 T: +1 416 863 1133, F: +1 416 365 8215, www.pwc.com/ca “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.IMAX CORPORATIONEXHIBIT 24POWER OF ATTORNEYEach of the persons whose signature appears below hereby constitutes and appoints Joseph Sparacio and Robert D. Lister, and each of them severally,as his true and lawful attorney or attorneys with power of substitution and re-substitution to sign in his name, place and stead in any and all such capacitiesthe Form 10-K, including the French language version thereof, and any and all amendments thereto and documents in connection therewith, and to file thesame with the United States Securities Exchange Commission (the “SEC”) and such other regulatory authorities as may be required, each of said attorneys tohave power to act with and without the other, and to have full power and authority to do and perform, in the name and on behalf of each of the directors of theCorporation, every act whatsoever which such attorneys, or either of them, may deem necessary or desirable to be done in connection therewith as fully and toall intents and purposes as such directors of the Corporation might or could do in person.Dated this 20th day of February, 2014. Signature Title/s/ Bradley J. Wechsler Chairman of the Board & DirectorBradley J. Wechsler /s/ Richard L. Gelfond Chief Executive OfficerRichard L. Gelfond (Principal Executive Officer)/s/ Neil S. Braun DirectorNeil S. Braun /s/ Eric A. Demirian DirectorEric A. Demirian /s/ Garth M. Girvan DirectorGarth M. Girvan /s/ David W. Leebron DirectorDavid W. Leebron /s/ Michael Lynne DirectorMichael Lynne /s/ Michael MacMillan DirectorMichael MacMillan /s/ I. Martin Pompadur DirectorI. Martin Pompadur /s/ Marc A. Utay DirectorMarc A. Utay /s/ Joseph Sparacio Chief Financial OfficerJoseph Sparacio (Principal Financial Officer)/s/ Jeffrey Vance ControllerJeffrey Vance (Principal Accounting Officer)IMAX CORPORATIONEXHIBIT 31.1Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002I, Richard L. Gelfond, certify that: 1.I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2013 of the registrant, IMAX Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: February 20, 2014 By: /s/ Richard L. Gelfond Richard L. Gelfond Chief Executive OfficerIMAX CORPORATIONEXHIBIT 31.2Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002I, Joseph Sparacio, certify that: 1.I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2013 of the registrant, IMAX Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: February 20, 2014 By: /s/ Joseph Sparacio Joseph Sparacio Executive Vice President and Chief Financial OfficerIMAX CORPORATIONEXHIBIT 32.1CERTIFICATIONSPursuant to Section 906 of the Sarbanes-Oxley Act of 2002(Subsections (A) and (B) of Section 1350, Chapter 63 of Title 18, United States Code)Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), I,Richard L. Gelfond, Chief Executive Officer of IMAX Corporation, a Canadian corporation (the “Company”), hereby certify, to my knowledge, that:The Annual Report on Form 10-K for the year ended December 31, 2013 (the “Form 10-K”) of the Company fully complies with the requirements ofsection 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-K fairly presents, in all material respects, thefinancial condition and results of operations of the Company. Date: February 20, 2014 /s/ Richard L. Gelfond Richard L. Gelfond Chief Executive OfficerIMAX CORPORATIONEXHIBIT 32.2CERTIFICATIONSPursuant to Section 906 of the Sarbanes-Oxley Act of 2002(Subsections (A) and (B) of Section 1350, Chapter 63 of Title 18, United States Code)Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), I,Joseph Sparacio, Chief Financial Officer of IMAX Corporation, a Canadian corporation (the “Company”), hereby certify, to my knowledge, that:The Annual Report on Form 10-K for the year ended December 31, 2013 (the “Form 10-K”) of the Company fully complies with the requirements ofsection 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-K fairly presents, in all material respects, thefinancial condition and results of operations of the Company. Date: February 20, 2014 /s/ Joseph Sparacio Joseph Sparacio Executive Vice President & Chief Financial Officer

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